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REPORT OF THE

PUBLIC ACCOUNTS COMMITTEE

ON

THE REPORTS OF THE DIRECTOR OF AUDIT

ON

THE ACCOUNTS OF THE HONG KONG GOVERNMENT

FOR THE YEAR ENDED

31 MARCH 1995

AND THE RESULTS OF

VALUE FOR MONEY AUDITS (Report No. 25)

JANUARY 1996

P.A.C. Report No. 25

CONTENTS

CHAPTER Page

1. INTRODUCTION

1.1 The Establishment of the Committee 1

1.2 The Membership of the Committee 1

2. PROCEDURE

2.1 The Committee’s Procedure 2 - 3

2.2 The Report of the Committee 3

2.4 The Government’s Response 3 - 4

3. REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON REPORT NO. 22 OF THE DIRECTOR OF AUDIT ON THE RESULTS OF VALUE FOR MONEY AUDITS (REPORT NO. 22)

3.1 The Laying of the Report 5

3.2 - 3.8 The Government Minute 5 - 7

4. REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON THE REPORT OF THE DIRECTOR OF AUDIT ON THE ACCOUNTS OF THE HONG KONG GOVERNMENT FOR THE YEAR ENDED 31 MARCH 1994 AND THE RESULTS OF VALUE FOR MONEY AUDITS (REPORT NO. 23)

4.1 The Laying of the Report 8

4.2 - 4.34 The Government Minute 8 - 19

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CONTENTS

CHAPTER Page

5. COMMITTEE PROCEEDINGS

5.1 The Consideration of the Director of Audit’s 20Reports

5.2 Meetings 20

5.3 - 5.4 The Arrangement of the Report 20

5.5 Acknowledgements 20

6. GENERAL REVENUE ACCOUNT

GOVERNMENT SECRETARIAT

6.1 Health and Welfare Branch 21

6.2 - 6.20 Security Branch and Finance Branch 22 - 35

GOVERNMENT DEPARTMENTS

6.21 - 6.28 Education Department 36 - 40

6.29 - 6.36 Government Land Transport Agency 41 - 45

6.37 - 6.52 Intellectual Property Department 46 - 53

6.53 - 6.64 Lands Department 54 - 60

6.65 - 6.82 Marine Department 61 - 72

6.83 - 6.93 Social Welfare Department 73 - 79

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CONTENTS

CHAPTER Page

7. CAPITAL WORKS RESERVE FUND

GOVERNMENT SECRETARIAT

7.1 - 7.24 Planning, Environment and Lands Branch 80 - 91

GOVERNMENT DEPARTMENTS

7.25 - 7.45 Architectural Services Department 92 - 103

7.46 - 7.54 Highways Department 104 - 108

8. THE HONG KONG HOUSING AUTHORITY

GOVERNMENT DEPARTMENT

8.1 - 8.15 Housing Department 109 - 117

SIGNATURES OF THE CHAIRMAN AND MEMBERS OF THE 118COMMITTEE

PARAGRAPHS IN THE DIRECTOR OF AUDIT’S REPORT NO. 25 DEALT WITH IN THE PUBLIC ACCOUNTS COMMITTEE’S REPORT

119

APPENDIX 1 Standing Order 60A of the Legislative Council

120 - 121

APPENDIX 2 Paper presented to the Legislative Council by the Chairman of the Public Accounts Committee at the sitting on 19 November 1986 on Scope of Government Audit in Hong Kong - ‘Value for Money’ Studies

122 - 124

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CONTENTS

CHAPTER Page

APPENDIX 3 Second Revised Codicil to the Paper “Scope of Government Audit in Hong Kong - ‘Value for Money’ Studies” tabled by the Chairman of the Public Accounts Committee in the Legislative Council on 26 July 1995

125

APPENDIX 4 Principal witnesses who appeared before the Committee

126 - 128

APPENDIX 5 Introductory remarks by the Chairman of the Public Accounts Committee, the Hon Eric LI Ka-cheung, JP at the first public hearing of the Committee on Monday, 20 November 1995

129

APPENDIX 6 Statement of an Understanding reached between the Hong Kong Government and UNHCR concerning the Treatment of Asylum Seekers arriving from Vietnam in Hong Kong

130 - 138

APPENDIX 7 Letter dated 25 September 1995 from the UNHCR to the Permanent Representative of the United Kingdom to the United Nations Office at Geneva

139 - 140

APPENDIX 8 Letter dated 15 December 1995 from the Secretary for the Treasury concerning advance accounts arrangements under the Public Finance Ordinance

141 - 142

APPENDIX 9 Letter dated 29 November 1995 from the Director of Accounting Services concerning expenditure on the care and maintenance of Vietnamese migrants

143 - 144

APPENDIX 10 Letter dated 5 December 1995 from the Director of Accounting Services concerning expenditure on the care and maintenance of Vietnamese migrants

145 - 147

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CONTENTS

CHAPTER Page

APPENDIX 11 Letter dated 1 December 1995 from the Committee to the Secretary for Security concerning expenditure on the care and maintenance of Vietnamese migrants

148 - 149

APPENDIX 12 Letter dated 19 December 1995 from the Secretary for Security replying to the Committee’s enquiries concerning expenditure on the care and maintenance of Vietnamese migrants

150 - 152

APPENDIX 13 Letter dated 19 December 1995 from the UNHCR replying to the Committee’s enquiries concerning the UNHCR’s debt to Hong Kong on the expenditure on the care and maintenance of Vietnamese migrants

153 - 154

APPENDIX 14 Letter dated 1 December 1995 from the Government Property Administrator concerning the under-utilization of government school sites

155 - 156

APPENDIX 15 Letter dated 5 December 1995 from the Director of Education concerning the under-utilization of government school sites

157 - 159

APPENDIX 16 Paper submitted by the Director of Intellectual Property concerning the registration of trade marks

160 - 161

APPENDIX 17 Memo dated 21 November 1995 from the Director of Intellectual Property concerning the registration of trade marks

162

APPENDIX 18 Letter dated 8 January 1996 from the Hong Kong Cargo Vessel Traders’ Association Ltd concerning the management of public cargo working areas

163 - 166

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CONTENTS

CHAPTER Page

APPENDIX 19 Letter dated 18 January 1996 from the Hong Kong Cargo Vessels Traders’ Association Ltd concerning the management of public cargo working areas

167 - 169

APPENDIX 20 Letter dated 29 November 1995 from the Secretary for Economic Services concerning the management of public cargo working areas

170 - 172

APPENDIX 21 A Paper dated 2 January 1996 submitted to the Committee by the Secretary for Economic Services concerning the management of public cargo working areas

173 - 181

APPENDIX 22 Letter dated 6 December 1995 from the Secretary for Planning, Environment and Lands concerning the Chemical Waste Treatment Centre

182 - 184

APPENDIX 23 Letter dated 12 December 1995 from the Secretary for the Treasury concerning the Chemical Waste Treatment Centre

185 - 186

APPENDIX 24 Letter dated 29 November 1995 from the Secretary for Planning, Environment and Lands concerning the Chemical Waste Treatment Centre

187 - 188

APPENDIX 25 A brief provided by the Acting Director of Architectural Services concerning Variation Order No.1 in relation to the construction of the Pamela Youde Nethersole Eastern Hospital

189 - 190

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CONTENTS

CHAPTER Page

APPENDIX 26 A table provided by the Acting Director of Architectural Services showing the measured cost of Variation Order No.1 in relation to the construction of the Pamela Youde Nethersole Eastern Hospital

191

APPENDIX 27 A table provided by the Acting Director of Architectural Services showing a comparison of variation works under different hospital projects

192

APPENDIX 28 A table provided by the Acting Director of Architectural Services showing a comparison between the cost estimates approved by the Finance Committee for the construction of the Pamela Youde Nethersole Eastern Hospital and the final account of expenditure

193

APPENDIX 29 Terms of reference and membership of the Rural Planning and Improvement Strategy Minor Works Steering Committee

194

APPENDIX 30 Letter dated 11 December 1995 from the Director of Housing concerning the disaster recovery plan for the Housing Authority

195 - 196

- vii -

1. INTRODUCTION

1.1 The Establishment of the Committee. The Public Accounts Committee was established by resolution of the Legislative Council on 10 May 1978. The Committee function under the provisions of Standing Order 60A of the Council, a copy of which is at Appendix 1 to this Report.

1.2 The Membership of the Committee. The following is a list of Members of the Committee appointed by the President under Standing Order 60A -

Chairman The Hon Eric LI Ka-cheung, JP

Members The Hon Ronald Arculli, OBE, JPThe Hon Albert CHAN Wai-yipThe Hon Emily LAU Wai-hingThe Hon CHAN Kam-lamDr the Hon LAW Cheung-kwokThe Hon SIN Chung-kai

Clerk Mrs Angela LEE

LegalAdviser Mr Jonathan Daw

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2. PROCEDURE

2.1 The Committee’s Procedure. The practice and procedure have been determined by the Committee, in accordance with paragraph 6 of Standing Order 60A, as follows -

(a) the public officers called before the Committee in accordance with paragraph (4) of Standing Order 60A, shall normally be the Controlling Officers of the Heads of Revenue or Expenditure to which the Director of Audit has referred in his Report except where the matter under consideration affects more than one such Head or involves a question of policy or of principle in which case the relevant Branch Secretary of the Government Secretariat or other appropriate officer shall be called. Attendance before the Committee shall be a personal responsibility of the public officer called and whilst he may be accompanied by members of his staff to assist him with points of detail, the responsibility for the information or the production of records or documents required by the Committee shall rest with him alone;

(b) where any matter referred to in the Director of Audit’s Report on the accounts of the Government relates to the affairs of an organization subvented by the Government, the person normally required to attend before the Committee shall be the Controlling Officer of the vote from which the relevant subvention has been paid, but the Committee shall not preclude the calling of a representative of the subvented body concerned where it is considered that such a representative can assist the Committee in its deliberations;

(c) the Director of Audit, the Secretary for the Treasury and the Director of Accounting Services shall be called upon to assist the Committee when Controlling Officers or other persons are providing information or explanations to the Committee;

(d) the Committee shall take evidence from any parties outside the civil service and the subvented sector before making reference to them in a report;

(e) the Committee shall not normally make recommendations on a case on the basis solely of the Director of Audit’s presentation;

- 2 -

PROCEDURE

(f) the Committee shall not allow written submissions from Controlling Officers other than as an adjunct to their personal appearance before the Committee; and

(g) the Committee shall hold informal consultations with the Director of Audit from time to time, so that the Committee can suggest fruitful areas for value for money study by the Director of Audit.

2.2 The Report of the Committee. This Report by the Public Accounts Committee responds to the Director of Audit’s following two Reports which were tabled in the Legislative Council on 8 November 1995 -

- Report on the Accounts of the Hong Kong Government for the year ended 31 March 1995 in accordance with section 12 of the Audit Ordinance; and

- Value for Money Audits Report No. 25 completed between March and September 1995. Value for money audits are conducted in accordance with the guidelines tabled in the Legislative Council on 19 November 1986 (Appendix 2). It was further agreed in October 1987 that the Director of Audit would report his findings on value for money audits to the Legislative Council twice each year. The present arrangements in the submission of the Director of Audit’s reports to the Legislative Council are detailed in the Second Revised Codicil to the Paper “Scope of Government Audit in Hong Kong - ‘Value for Money’ Studies” (Appendix 3).

2.3 This Report also takes stock of the progress of the action taken by the Administration on the recommendations made in the Committee’s Reports No. 22 and 23 and offers their views on the action taken. These are detailed in chapters 3 and 4 of this Report.

2.4 The Government’s Response. The Government’s response to the Committee’s Report is contained in the Government Minute, which comments as appropriate on their conclusions and recommendations, indicates what action the Government proposes to take to rectify any irregularities which have been brought to notice by them or by the Director of Audit and, if necessary, explains why it is not intended to take action. It is the Government’s stated intention that the Government Minute should be laid on the table of the Legislative Council within three months of the laying of the Report of the Committee to which it relates.

3. REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ONREPORT NO. 22 OF THE DIRECTOR OF AUDIT ON THE

RESULTS OF VALUE FOR MONEY AUDITS (REPORT NO. 22)

3.1 The Laying of the Report. The Director of Audit’s Report (Report No. 22) on the results of value for money audits was tabled in the Legislative Council on 27 April 1994. The Committee’s subsequent Report (Report No. 22) was tabled on 6 July 1994.

3.2 The Government Minute. The Government Minute was laid on the table of the Legislative Council on 12 October 1994. A progress report on matters outstanding from the Minute was issued on 27 October 1995. The latest position and the Committee’s further comments on these matters are set out in paragraphs 3.3 to 3.8 below.

3.3 Licensing of hotels, guesthouses and clubs (Paragraphs 5.1 - 5.8 of P.A.C. Report No. 22). The Committee were informed that -

- on the licensing of hotels and guesthouses under the Hotel and Guesthouse Accommodation Ordinance, the Licensing Authority (LA) had licensed all Phase I premises consisting of 92 hotels and 374 tourist guesthouses, and completed inspection in respect of all 471 local guesthouses and 45 motels under Phase II. The LA issued them with either a licence or a certificate of exemption with a notice of upgrading requirements. Those with a certificate of exemption would have one year to upgrade their premises to qualify for a licence. The LA would inspect the remaining 470 holiday flats and 41 holiday camps in Phase II, and would require operators to achieve licensable standards by the end of August 1997. The LA, with the support of the police, would continue to take enforcement action against establishments which tried to circumvent the regulation. So far, there had been five successful prosecutions;

- on the licensing of clubs under the Clubs (Safety of Premises) Ordinance, the LA had issued certificates of compliance to all 105 clubs in the higher fire risks category and 105 clubs in the lower fire risks category. The LA had started to inspect the remaining 700 clubs in the lower fire risks category, and would require them to achieve the licensable standards by the end of March 1997;

- the LA would continue to monitor these premises, carry out random inspections and conduct annual inspections for renewal of licences; and

The Public Accounts CommitteeReport No. 22

- on the question of cost recovery, the Secretary for Home Affairs was preparing new scales of fees with a view to achieving full cost recovery upon full implementation of the licensing schemes in 1997.

3.4 The Committee wish to be kept informed of further progress.

3.5 Diamond Hill Development - Area B site formation (Paragraphs 5.31 - 5.37 of P.A.C. Report No. 22). The Committee were informed that, notwithstanding a recent agreement reached on the value of most items in the variation order, the contractor had referred the dispute to arbitration in accordance with the conditions of the contract. The contractor had also indicated his intention to raise other claims in relation to the contract, and had suggested that the Government should settle all the claims by way of an ex-gratia grant. The Director of Civil Engineering had sought further legal advice and details of the additional claims, in order to consider if all the claims might be dealt with at one time.

3.6 The Committee wish to be kept informed of further development.

3.7 Delay in the computerization of property maintenance (Paragraphs 6.1 - 6.7 of P.A.C. Report No. 22). The Committee were informed that -

- following the completion of the design of the elemental coding system and the condition survey function by a consultant in September 1993, a contract for the development and implementation of the Automated Communication, Technical Information and Operation Network (ACTION) was awarded in April 1994 to a contractor at a cost of $11.5 million. However, the contractor had not produced the functionally acceptable deliverables and delayed in completing the development of ACTION, and as a result, the Government was unable to bring ACTION into operation in April 1995 to dovetail with the commencement date of the new triennial maintenance term contracts;

- the contractor claimed that the delay was due to changes of scope in the project specifications during the development of ACTION. This was disputed by the Government which gave notice to the contractor to terminate the contract in September 1995. The Government’s litigation counsel was preparing for necessary legal action on the case; and


- the failure in implementing ACTION had resulted in a further delay in realizing the expected improvements in the efficiency and effectiveness of property maintenance. The Government was considering further courses of action in order to complete the development of ACTION as soon as possible.

3.8 The Committee -

- are concerned at the further delay in the implementation of ACTION; and

- wish to be kept informed of further progress.

4. REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON THEREPORT OF THE DIRECTOR OF AUDIT ON THE ACCOUNTS OF THE

HONG KONG GOVERNMENT FOR THE YEAR ENDED 31 MARCH 1994 ANDTHE RESULTS OF VALUE FOR MONEY AUDITS (REPORT NO. 23)

4.1 The Laying of the Report. The Director of Audit’s Report (Report No. 23) on the Accounts of the Hong Kong Government for the year ended 31 March 1994 and the results of value of money audits was tabled in the Legislative Council on 16 November 1994. The Committee’s subsequent Report (Report No. 23) was tabled in the Legislative Council on 15 February 1995.

4.2 The Government Minute. The Government Minute was laid on the table of the Legislative Council on 10 May 1995. A progress report on matters outstanding from the Minute was issued on 27 October 1995. The latest position and the Committee’s further comments on these matters are set out in paragraphs 4.3 to 4.34 below.

4.3 Determination of the capital and reserve needs of the Hong Kong Export Credit Insurance Corporation, and of the use of its surplus (Paragraphs 5.3 - 5.4 of P.A.C. Report No. 23). The Committee were informed that -

- the Hong Kong Export Credit Insurance Corporation (HKECIC) had calculated its excess assets net of current liabilities, claims provision, contingent liability and the non-insurance related reserve in accordance with the consultant’s recommended formula, and had advised the Secretary for Trade and Industry that the amount of its excess assets was $90.63 million as at 31 March 1994, and $100.53 million as at 31 March 1995; and

- the excess assets had allowed the HKECIC to implement various improvement measures such as raising the indemnity ratio to 90% for repudiation risk cover, and to reduce premium rate by up to 10% in 1995-96. The Secretary for Trade and Industry was nevertheless considering the deployment of the excess assets and would discuss this with the Finance Branch in due course. According to the legal advice obtained in 1992, the HKECIC Ordinance (Cap. 1115) might have to be amended if the Administration eventually decided to claw back some of the excess assets.

4.4 The Committee wish to be kept informed of the eventual deployment of the HKECIC’s excess assets by the Administration.


4.5 Abuse of policy governing the registration and licensing of goods vehicles (Paragraphs 5.5 - 5.6 of P.A.C. Report No. 23). The Committee were informed that -

- a report summarizing the comments from the trade on the recommendations of the Freight Transport Study had been completed and was being considered by the Administration; and

- as regards the reclassification of goods vehicles and the removal of differential licence fees for light goods vehicles and private car, the Administration was studying the implications and would advise the Committee in due course.

4.6 The Committee -

- urge that the study on the reclassification of goods vehicles and the removal of differential licence fees on light goods vans and private cars should be completed without further delay; and

- wish to be kept informed of further development on the subject.

4.7 Management of community centres and community halls under the community building programme (Paragraphs 5.11 - 5.12 of P.A.C. Report No. 23). The Committee were informed that -

- the Secretary for Health and Welfare and the Director of Social Welfare had agreed to take over from the Director of Home Affairs the responsibility for managing community centres in a phased manner; and

- the departments concerned were identifying and confirming the resources required to enable the transfer to take place starting from 1995-96.


4.9 Redevelopment of the Oil Street site presently occupied by the Government Supplies Department’s headquarters and storage depot (Paragraphs 5.13 - 5.14 of P.A.C. Report No. 23). The Committee were informed that -


- the construction of the replacement godown to house the storage portion of the Government Supplies Department’s facilities would be completed by August 1996. The office portion of the Department would be relocated to the North Point Government Offices Building which was also under construction and expected to be completed in February 1998; and

- the Government would release the Oil Street site for disposal upon completion of the above moves and a recommendation would be made to the Town Planning Board that the site be rezoned from “Government/Institution/ Community” to “Comprehensive Development Area”.

4.10 The Committee note the progress made in the redevelopment of the Oil Street site and wish to be kept informed of further progress.

4.11 Licensing of travel agents and the self-regulation scheme of the outbound travel industry (Paragraphs 5.17 - 5.18 of P.A.C. Report No. 23). The Committee were informed that in March 1995, the Advisory Committee on Travel Agents wrote to Members of the Legislative Council, the District Boards, the Consumer Council and the Travel Industry Compensation Fund Management Board inviting views on the self-regulation of the outbound travel industry. For an examination of the organisation and management of the Travel Industry Council of Hong Kong (TIC) and its executive office, the Trade and Industry Branch drew up a questionnaire which was completed by the TIC in July 1995. The Administration was aiming at completing the review shortly and would report the outcome of the review to the Committee.

4.12 The Committee note that the Administration’s review on the self-regulation of the outbound travel industry is in progress and wish to be kept informed of the outcome.

4.13 The problems of indebtedness of some civil servants working in the Royal Hong Kong Police Force (Paragraphs 5.25 - 5.26 of P.A.C. Report No. 23). The Committee were informed that -


- the latest survey on indebtedness in the Force had shown a substantial increase in the number of loans from the Police Welfare Fund and the Police Credit Union and a decrease in the number of advances of salaries under CSR 618. The number of known indebtedness cases from other sources had dropped from 145 to 132 officers. However, the number of officers who were subject to Notice for Recovery of Tax had significantly increased from 423 to 878;

- the Commissioner of Police had taken the following measures to tackle the problems of indebtedness of police officers -

(a) a further policy statement was made to remind officers that indebtedness was contrary to the Force policy and could be negatively construed in determining an officer’s promotion prospects, renewal of agreement and/or re-employment; and

(b) Police Commanders at all levels would continue to advise their officers not to become indebted due to overspending and gambling, and would examine each case to see if there was any indication of unmanageable debts;

- on the general question of indebtedness in the civil service, having considered the recommendations of a review conducted by the Independent Commission Against Corruption, the Civil Service Branch planned to implement a number of measures to tackle the problem. These included -

(a) requiring new appointees to the civil service to declare and to seek permission for outstanding loans;

(b) requiring applicants for salary advances to declare outstanding loans obtained from other sources;

(c) providing induction briefings to new appointees on the importance of prudent financial management; and

(d) requesting supervisors to report cases of deterioration in subordinates’ performance believed to have been a result of indebtedness; and

- concerning the exercise of re-designing the form (G.F. 421) for salary advances, the Administration was conducting a review of the existing CSRs on advances of salary. The Administration intended to consult the Staff Sides


on the proposed changes. If everything went smoothly, the revised form might be ready for introduction in early 1996.

4.14 The Committee -

- wish to express their utmost concern about the continual problems of indebtedness amongst police officers;

- recommend that the Commissioner of Police should take more effective measures to tackle the problem; and

- recommend that the Commissioner should make regular reports of the six-monthly indebtedness surveys to the Legislative Council Panel on Security.

4.15 The Tolo Harbour Action Plan (Paragraphs 5.27 - 5.28 of P.A.C. Report No. 23). The Committee were informed that -

- Stage I (Shatin) of the effluent export scheme was in full operation and the works for Stage II (Tai Po) had been substantially completed;

- the Administration was monitoring progress of the works with a view to meeting the target dates of the village sewerage scheme; and

- the Administration was taking action, through the adoption of better husbandry methods, to reduce the nitrogen loading from mariculture.


- wish to be kept informed of further progress in the implementation of the village sewerage scheme;

- note with concern that the nitrogen loading from mariculture alone could amount to 300 to 400 kilograms per day, which, together with other identified sources of pollution, will affect the achievement of the 600 kilograms per day target set for the Tolo Harbour; and


- wish to be informed whether the new husbandry methods are effective in reducing pollution from mariculture.

4.17 Provident fund and superannuation schemes operated by subvented organizations (Paragraphs 6.3 - 6.4 of P.A.C. Report No. 23). The Committee were informed that -

- regarding the outcome of the review of the Inter-institutional Task Force, the Task Force had considered the consultant’s draft report on stage 1 of the second phase study and recommended that a joint scheme should be established as a means to standardizing superannuation benefits for the seven University Grants Committee - funded institutions. The Task Force also recommended that all new appointees to the seven institutions would have to join the new scheme, whereas existing members would be given an option to join;

- regarding the long-term financial position of the University of Hong Kong (HKU)’s and the Chinese University of Hong Kong (CUHK)’s superannuation schemes -

(a) the HKU was still negotiating with its staff regarding its proposed amendments to its superannuation scheme. The University Council would consider how the scheme would be amended; and

(b) the CUHK had terminated its previous superannuation scheme with effect from 31 March 1995 and crystallized the vested benefits of all the scheme members on the same date. The following options were available to staff members with regard to future benefits -

(i) to join a new scheme the basis of which had been changed from defined benefit to defined contribution;

(ii) not to participate in any new scheme from 1 April 1995 and take the would-be contribution by the University at 15% of their basic salaries as gratuities; or

(iii) to elect not to crystallize their vested benefits as at 31 March 1995 on condition that they agreed to release the University and the Scheme from all the responsibilities for guaranteeing the superannuation benefits in respect of their services both prior to and after 31 March 1995; and


- the CUHK had applied to register its new superannuation scheme under the Occupational Retirement Schemes Ordinance.


- express concern about the long delay in resolving the problems of its superannuation scheme by the HKU; and

- wish to be kept informed of -

(a) the outcome of the study undertaken by the Inter-institutional Task Force to introduce a joint scheme for new staff;

(b) the progress of the measures being taken by the HKU and CUHK to improve the long-term financial position of their superannuation schemes; and

(c) the position of the provident fund schemes of other University Grants Committee-funded institutions.

4.19 Direct Subsidy Scheme (Paragraphs 8.1 - 8.9 of P.A.C. Report No. 23). The Committee were informed that regarding the review of the Direct Subsidy Scheme (DSS), the Private Schools Review Committee (PSRC) was considering the preliminary findings of the questionnaire survey on schools. At the same time, members of the PSRC were aware that two reviews were currently conducted respectively on the “Provision of International School Places” and the “Funding Arrangements in respect of schools under the English Schools Foundation”. As these two reviews might have implications on the DSS, the PSRC could take into account any recommendations arising from the reviews in its deliberations on the DSS.

4.20 The Committee wish to be kept informed of the results of the review of the DSS.


4.21 Control of dutiable commodities and assessment and collection of duty (Paragraphs 8.22 - 8.35 of P.A.C. Report No. 23). The Committee were informed that -

- the post-implementation review of the computer system for the control of dutiable commodities had been completed. The Information Technology Services Department (ITSD) was preparing the review report;

- in June 1995, the Customs and Excise Department (C&ED) issued a report on the “Review on the Establishment of Civilian Posts in the Excise Statistics and Research Division, Valuation and Verification Division and the Licence and Permit Division of the Office of Dutiable Commodities Administration”. The Report identified some surplus posts, and the Administration had agreed, in principle, on the deletion of the ten surplus posts before 1997-98; and

- the Anti-Cigarette-Smuggling Task Force seized 293 million pieces of cigarettes with a duty potential of $182 million during the period from May 1994 to June 1995. Correspondingly, revenue collected from cigarettes during the same period amounted to $2.8 billion, an increase of 15% over the same period in the previous year.

4.22 The Committee wish to be kept informed of -

- the result of the post-implementation review of the computer system for the control of dutiable commodities;

- the timing of the deletion of the ten surplus posts resulting from the establishment review; and

- the work progress of the Anti-Cigarette-Smuggling Task Force.

4.23 Redevelopment of the sites occupied by the Wanchai Police Station and staff quarters (Paragraphs 8.36 - 8.46 of P.A.C. Report No. 23). The Committee were informed that the Administration was examining an option of reprovisioning the police station on a site at Phase II of the Wanchai Reclamation. According to the tentative programme, engineering works on the Reclamation would start in 1999. In the meantime, the departments concerned were still evaluating the land exchange proposal by a private developer.


4.24 The Committee note the action taken by the Administration to consider the reprovisioning of the Wanchai Police Station and wish to be kept informed of further progress.

4.25 The use of computer-aided transcription and mechanical sound recording in court reporting (Paragraphs 8.61 - 8.70 of P.A.C. Report No. 23). The Committee were informed that -

- in view of the encouraging outcome of the pilot scheme on digital audio recording and transcription services in the District Courts, the Administration recommended a phased programme to expand the court reporting service, as follows:

Phase Courts to be covered

Target implementation

date

I District Court April 1996

II Magistracies November 1996

III Tribunals, Coroners Court and Family Court

April 1997

- the objective was to provide transcripts in English or Chinese depending on the requirements of the presiding Judicial Officers or the requests from the parties. The Judiciary would employ private contractors to provide the recording and transcription services; and

- in June 1995, the Finance Committee approved the financial implications of $66.3 million for the extension of computerized audio recording and transcription production services to all levels of courts. Tenders for Phase I were invited in August 1995.

4.26 The Committee wish to be kept informed of the progress of implementation of computerized audio recording and transcription production services in the Judiciary.


4.27 The performance of the Traffic Warden Corps (Paragraphs 8.71 - 8.85 of P.A.C. Report No. 23). The Committee were informed that -

- the Commissioner of Police (CP) had conducted a trial scheme of quantifying the performance of the Traffic Warden Corps (TWC) on a district basis, taking into account the characteristics and traffic policing priorities of the districts in assessing the performance of the TWC. He was satisfied with the outcome and had adopted the performance assessment method used in the trial scheme, with minor modifications, on a permanent basis;

- the preliminary conclusion reached by the CP was that privatization of parking meter enforcement was operationally feasible. The Secretary for Transport had convened an inter-departmental working group to examine the feasibility and implementation details;

- the Commissioner for Transport (C for T) and the parking management contractor continued to monitor closely the black spots for non-feeding of parking meters and to provide information to the Police for enforcement action. The C for T would replace the existing mechanical parking meters with electronic parking devices, subject to confirmation of the cost-effectiveness of the replacement exercise; and

- the Administration would take a view on the recommendation of the Committee that more off-street parking spaces should be provided after the completion of the Parking Demand Study.


4.29 North West Kowloon sewage treatment and disposal, stage I, phase II (Paragraphs 9.1 - 9.9 of P.A.C. Report No. 23). The Committee were informed that -

- the Director of Drainage Services had issued a Departmental Circular to advise his staff of the need to critically examine all available information before finalizing design population figures for new projects. It made specific reference to the Working Group on Population Distribution (WGPD) and its applications;

- the Director had organized a briefing on the background and rationale of the WGPD for his staff to enable them to be better placed to interpret variances


among different population projections and to choose the most appropriate figures for design purposes; and

- the Director had established a Working Group on Design Flow in March 1995. Although this was not directly related to population projections, the Working Group would review existing design standards used to estimate the flow capacities for new sewerage systems. Due to seasonal variation, it would be necessary for the Working Group to measure sewage flow for at least a year before any meaningful results could be obtained. The Working Group aimed to complete the exercise by the end of 1996.

4.30 The Committee note the various courses of action taken by the Director of Drainage Services to implement their recommendations and wish to be informed of the outcome of the review being carried out by the Working Group on Design Flow.

4.31 Tai Po Sewage Treatment Works Stage IVA - Process modifications (Paragraphs 9.10 - 9.17 of P.A.C. Report No. 23). The Committee were informed that -

- the Director of Territory Development had issued a technical memorandum providing the necessary guidelines for ordering variations under a works contract;

- the engineer for the contract had made some progress in finalizing the outstanding issues. The Director of Territory Development was closely monitoring the situation with a view to taking timely action to recover the liquidated damages previously refunded to the contractor, in consultation with the Attorney General’s Chambers; and

- the Secretary for Works aimed to issue a Project Controls Manual by the end of 1996. The Manual would set out controls to ensure that works departments would consider different options for implementing additional works with a view to adopting the most cost-effective solution.


4.32 The Committee wish to be informed of the progress of recovering the liquidated damages previously refunded to the contractor and in finalizing the outstanding contractual issues, and the progress of issuing the Project Controls Manual.

4.33 Implementation of a Batch Payment System for the processing of building term maintenance contracts works orders (Paragraphs 10.1 - 10.10 of P.A.C. Report No. 23). The Committee were informed that -

- in April 1995, the Establishment and Finance Committee of the Housing Authority approved the staffing requirement of the Batch Payment System (BPS) Unit for processing major works orders. In May 1995, the Housing Department (HD) set up the BPS Unit and implemented Stage I of the BPS in the West Maintenance Region. The HD would conduct a review in early 1996 to determine the effectiveness of Stage I of the BPS and the viability of extending the BPS to the remaining two maintenance regions in 1996. The HD estimated that, upon full implementation of the BPS in the three maintenance regions, the annual saving in private quantity surveyors fees could amount to $11.4 million; and

- in January 1995, the HD redeployed the Batch Payment Teams to the Estate Management Branch to handle minor maintenance works. The HD carried out an interim review to measure the performance of the staff capacity of the Batch Payment Teams from April to June 1995. The HD would submit the findings of the interim review to its Departmental Establishment Committee for endorsement in October 1995 and then to the Establishment and Finance Committee of the Housing Authority for consideration.


- note that the HD has carried out a detailed study on the operation of the BPS including a review of the output of Survey Officers; and

- wish to be kept informed of further progress.

5. COMMITTEE PROCEEDINGS

5.1 The Consideration of the Director of Audit’s Reports tabled in the Legislative Council on 8 November 1995. As in previous years, the Committee did not consider it necessary to investigate in detail every observation contained in the Director of Audit’s Reports and they therefore selected only those paragraphs in the Director of Audit’s Report No. 25 which, in their view, referred to more serious irregularities or shortcomings. It is the investigation of those paragraphs which constitutes the bulk of this Report. The Committee expect, however, that the Government will take appropriate remedial action on other issues raised in the Director’s Reports.

5.2 Meetings. The Committee held 21 meetings, including 6 public hearings. At the public hearings, the Committee heard evidence from a total of 54 witnesses, including six Policy Branch Secretaries and 13 Heads of Government Departments. The names of the principal witnesses are listed in Appendix 4 to this Report. A copy of the Chairman’s introductory remarks at the first public hearing on 20 November 1995 is at Appendix 5.

5.3 The Arrangement of the Report. The evidence of the witnesses who appeared before the Committee and the Committee’s specific conclusions and recommendations, based on that evidence and on their deliberations on the Director of Audit’s Report, are set out below in three sections, entitled General Revenue Account, Capital Works Reserve Fund and the Hong Kong Housing Authority. The paragraph numbers quoted refer to paragraphs in the Director of Audit’s Report No. 25.

5.4 A verbatim transcript of the Committee’s public proceedings has been prepared. This is published together with the Committee’s Report.

5.5 Acknowledgements. The Committee wish to record their appreciation of the co-operative approach adopted by all the persons who were invited to give evidence. In addition, the Committee are grateful for the assistance and constructive advice given throughout by the Secretary for the Treasury, the Director of Accounting Services, the Clerk and the Legal Adviser. The Committee also wish to thank the Director of Audit for the objective and professional manner in which he has completed his Reports, and for the many services which he and his staff have rendered to the Committee throughout their deliberations.

6. GENERAL REVENUE ACCOUNT

HEALTH AND WELFARE BRANCH

Review of the housing benefits provided by the Hospital Authority to its employees

6.1 The Committee held three public hearings on 20 November, 6 and 9 December 1995 on this subject. The principal witnesses invited to appear before the Committee included the current and former public officers involved, the former Chairman of the Hospital Authority (HA) and the Chief Executive of the HA. Subsequent to the public hearings and in an attempt to clarify the conflicting evidence given by the witnesses concerning formulation of the policy and resulting financial implications of the HA remuneration package, the Committee wrote twice to the Chief Secretary with a view to seeking clarifications and obtaining the relevant documentary evidence in relation to the policy formulation process. However, at the time of finalizing this Report (30 January 1996), the Committee were still awaiting the Chief Secretary’s reply. In order not to hold up the whole report, the Committee decided to defer a full report on this subject. On receipt of the Administration’s response, the Committee will endeavour to finalize their report to the Council at the earliest opportunity.

SECURITY BRANCH AND FINANCE BRANCH

Problems of recovering from the UNHCR the advances:Expenditure to care for Vietnamese migrants

6.2 The problems of recovering from the United Nations High Commission for Refugees (UNHCR) the advances made by the Hong Kong Government to meet the costs of maintaining Vietnamese migrants (VMs) had been a subject of concern of the Committee since the issue was first brought up by the Director of Audit in his Report No. 16 published in October 1990. The Committee had since then repeatedly urged the Administration to take more vigorous action to recover the outstanding advances. To the Committee’s disappointment, the effort made by the Government did not seem to have produced good results and the amount of the outstanding advances continued to increase from $129 million as of 31 March 1990 to $978.2 million as of 31 December 1994. In the light of the slow progress made, the Committee invited the Director of Audit to review the latest situation and conduct this follow-up audit. The Committee specifically requested the Director of Audit to research into the experiences of other Southeast Asian countries in recovering from the UNHCR their expenses on VMs.

6.3 In his Report No. 25, the Director of Audit revealed that the total amount of outstanding advances had increased to $1005.7 million as of 31 March 1995. The Director queried whether it was still reasonable for the Government to continue to invoke Section 20 of the Public Finance Ordinance (Cap 2) in using the advance accounts to pay for the expenses incurred in the care and maintenance of VMs stranded in Hong Kong. In explaining to the Committee why he did not raise this query in his Report No. 19 in 1992, the Director of Audit said that although the advance accounts arrangement was known to him at the last audit review, it did not cause him too much concern until the UNHCR openly made an assertion in mid-1994 that it had no legal liability to pay the Hong Kong Government the outstanding advances. By then, he realized the seriousness of the problem, hence his examination of recoverability of the advances.

6.4 In response to the Committee’s enquiry about the background to the opening of the advance accounts on VM expenditure in 1989 and whether this was purposely done to circumvent the need to seek funding approval from the Finance Committee of the Legislative Council, the Secretary for Security said that -

- prior to 1988, the UNHCR was responsible for all the costs in the maintenance of the VMs in Hong Kong and payments were always made in advance in accordance with an annual project agreement signed between the UNHCR and the Hong Kong Government;

Problems of recovering from the UNHCR the advances: Expenditure to care for Vietnamese migrants

- in 1988, due to an upsurge in the number of Vietnamese boat people arriving to Hong Kong, the UNHCR began to have difficulties in meeting the VM maintenance expenditure in full;

- in the same year, a screening policy was introduced to determine the refugee status of arriving VMs, as a result of which the Hong Kong Government and the UNHCR reached a Statement of Understanding (SOU), copy at Appendix 6, for the maintenance of VMs in Hong Kong; and

- in the light of the UNHCR’s financial difficulties and its continued commitment to meet the costs for the care and maintenance of VMs, the Financial Secretary decided to exercise the delegated authority under Section 20 of the Public Finance Ordinance in making advances to pay for the maintenance of VMs, pending the reimbursement from the UNHCR.

6.5 Commenting on the fact that the UNHCR was not financially capable of meeting the VM expenditure in full, the Committee asked why the Financial Secretary still took the decision to proceed with the advance accounts arrangement bearing in mind that Section 20 of the Public Finance Ordinance provided that public moneys paid from advance accounts should be recoverable. The Committee queried whether it was a political decision and whether the Administration was subject to any external pressure, say from the British Government. The Secretary for Security said that -

- the decision for the advance accounts arrangement was a decision taken by the Hong Kong Government;

- the Hong Kong Government was then left with limited choices because the UNHCR had made it clear that its financial position did not allow it to effect full payment to the Hong Kong Government and there was a substantial number of VMs in Hong Kong who had to be taken care of;

- in arriving at the decision, the Administration had reasons to believe that the advances would be recoverable and it had been a fact that the UNHCR had been regularly reimbursing to the Hong Kong Government part of the outstanding advances every year although its repaying capability depended very much on the donations it could get from other countries;

- contrary to the suggestion of the Director of Audit and according to the legal advice obtained by the Security Branch, the word “recoverable” in Section 20 of the Public Finance Ordinance carried the ordinary meaning of “capable of being recovered”, not necessarily by way of legal proceedings. In any event,


the International Organization and Diplomatic Privileges Ordinance (Cap 190) applied to the UNHCR, which meant that it was afforded statutory immunity from lawsuit; and

- the UNHCR had repeatedly assured that it would continue to stand behind its commitment and would make every effort to raise the necessary funds to repay the Hong Kong Government. The latest assurance was made in the form of a letter dated 25 September 1995 to the Permanent Representative of the United Kingdom (UK) to the United Nations (UN) Office at Geneva (Appendix 7), in which the UNHCR had clearly admitted its liability to Hong Kong.

The Secretary for the Treasury added that in deciding to invoke Section 20 of the Public Finance Ordinance, the Financial Secretary had considered carefully, taking into account the advice of both the Security Branch and the Finance Branch and the situation of the UNHCR. In the final analysis, the Financial Secretary was satisfied that it was a reasonable, sensible and lawful decision.

6.6 Referring to paragraph 2.10 of the Director of Audit’s Report which revealed that in July 1989, the Secretary for the Treasury had accepted that there were outside risks that the UNHCR might not be able to meet its obligations in full, the Committee asked why the Secretary was still supportive of the advance accounts arrangement and believed that the advances would be recoverable. The Secretary for the Treasury said that -

- for any kind of advances, there was always a risk factor;

- in making a decision whether the advance accounts arrangement was justifiable, the Administration had to look at the overall situation;

- in this particular case, the Administration had considered all relevant factors and was satisfied with the undertaking and commitment demonstrated by the UNHCR to reimburse the advances made;


- in the light of the concern expressed by the Director of Audit, the Administration had reviewed its decision in this case. Having carefully considered all the information available, the Financial Secretary was satisfied that the advance accounts arrangement for the VM expenditure was a reasonable one; and

- the Administration had accepted the Director of Audit’s recommendation and would make sure that all the relevant payment vouchers related to VM expenditure were kept until the advances had been fully recovered.

6.7 The Committee pointed out that when the Public Finance Bill was introduced into the Legislative Council in December 1982, the Financial Secretary advised that the purpose of the Bill was to provide a statutory framework for the control and management of the public finances and it did not introduce any basic changes to the prevailing system. The Committee invited the Administration to provide more background to the practice of making recoverable advances prior to the enactment of the Bill and how the meaning of “recoverable” was then interpreted. In his written reply to the Committee after the public hearing (Appendix 8), the Secretary for the Treasury said that -

- it had been the Government’s long standing convention to open advance accounts for recoverable payments;

- before the enactment of the Public Finance Ordinance, the Financial Secretary, under the delegation of the Governor, had unfettered authority for the making of recoverable advances; and

- it could not be traced on record what interpretation and meaning had then been given to the word “recoverable”.

6.8 On a question by the Committee on whether there were any guidelines governing the opening of any advance accounts and whether the Financial Secretary, in exercising this delegated authority, was subject to any checks and balances, for example the approval of the Executive Council (ExCo), the Secretary for the Treasury said that -

- there were no general guidelines or across-the-board arrangement for the opening of advance accounts because each individual case was different and


had to be considered on its own merits, but the Administration kept very detailed record on how specific decisions were made;

- the general principle to consider was whether or not the advances would be recoverable;

- the power to exercise the delegated authority under the Public Finance Ordinance vested in the Financial Secretary and it was not necessary to seek the endorsement of either the ExCo or the Legislative Council; and

- in this particular case, the ExCo had all along been kept informed of the handling of the VM problem.

6.9 The Committee asked whether expenditure under the advance accounts was subject to any restrictions, say whether it could only be used in Hong Kong or by government departments on matters directly related to Hong Kong. The Secretary for the Treasury said that -

- there were no such restrictions under the provisions of the Public Finance Ordinance; and

- as far as the VM expenses were concerned, the money was spent directly by the Hong Kong Government rather than being given to the UNHCR. They were therefore departmental expenses paid in the form of advances.

6.10 At the invitation of the Committee, the Director of Accounting Services explained the current operation of the advance accounts and supplemented in writing (Appendices 9 and 10 ) after the public hearing by giving details of the various expenditure items in the accounts, in particular the VM expenditure. The Director said that -

- authority to make payments of public moneys by way of advances was issued to him by the Financial Secretary, by way of an annual general warrant;

- no separate warrant was required for a specific item of expenditure, such as the item on the VM expenditure;

- the authorization of charging the VM expenditure to an advance account was made in the form of a memo dated 11 July 1989 issued by the Secretary for the Treasury;


- advances were made for a variety of reasons, but the essence of which was that they were rolling advances and most of them were recoverable within a relatively short period of time;

- at the financial year ending 31 March 1995, there were outstanding advances totalling $3.09 billion, of which $1.05 billion was related to VMs; and

- of all the advances made, the two major items were respectively related to advances made to government officers and the VM expenditure. Others were relatively minor items and these included advances to some works departments for the demolition of illegal structures pending recovery of costs from the owners concerned, advances to some non-government bodies, such as the municipal councils, the Housing Authority and the Hospital Authority, etc.

6.11 In response to a follow-up question by the Committee, the Director agreed that in terms of its size and peculiar nature, the advance account on the VM was quite unusual and distinct from other advance accounts currently in existence. Nevertheless the situation was explicitly reflected in the General Revenue Account tabled annually in the Legislative Council making clear that the timing of recovery of the outstanding advances was uncertain but the Hong Kong Government was continuing to press UNHCR for early settlement.

6.12 Responding to the Committee’s suggestion that the Administration should discontinue with the advance accounts arrangement for the VM expenditure, the Secretary for the Treasury replied vide Appendix 8 that the Administration saw no justifications to discontinue the practice. He expressed concern that by so doing, the Hong Kong Government risked sending a wrong signal to the international community that Hong Kong no longer expected full reimbursement from the UNHCR and was willing to shoulder fully the costs for the care and maintenance of the VMs.

6.13 The Committee questioned what action had been taken by the Administration to press for the recovery of the outstanding advances from the UNHCR and how it could be ensured that the recovery could be successfully made within a short period of time. The Secretary for Security said that -

- the UNHCR’s capability to reimburse the Hong Kong Government depended very much on the amount of donation it could receive and for this reason, the Hong Kong Government had, on a number of occasions, appealed to the


international community to make donations to the UNHCR towards the VM programme in Hong Kong;

- a latest appeal was made at the meeting of the Steering Committee on “Comprehensive Plan of Action” in March 1995 and as a result of the appeal, a statement was issued by the Steering Committee to this effect; and

- the Administration would continue with its effort and would make similar appeals to the UNHCR and the international community whenever opportunities arose but it was not possible to guarantee when the UNHCR could repay the outstanding advances in full.

6.14 In response to the Committee’s written enquiry (Appendix 11) subsequent to the public hearing, the Secretary for Security advised vide Appendix 12 about UK’s contributions to the VM programme since 1989 as follows -

HK $ million- directly to Hong Kong Government, mainly

in respect of accommodation for VMs and 259.84the repatriation programme

- to non-government organization’s VM 2.59programmes in Hong Kong

- to UNHCR but earmarked for Hong Kong’s 569.93benefits in different ways

- to VM programmes in Vietnam 191.37

6.15 Referring to the many assertions made by the UNHCR that it would stand by its commitments to reimburse the money it owed to Hong Kong, the Committee asked why the UNHCR did not properly record the debt in its account. The Committee also enquired whether it was possible for the UNHCR to put back a footnote in its financial statement, as it had previously been done in the 1993 audited accounts. Mr Jahanshah Assadi of the UNHCR said that -

- the UN adopted very stringent financial rules which did not allow the UNHCR to spend any moneys which had not yet been raised, hence preventing it from recording any debts in its accounts;


- despite all the difficulties and its commitments in other parts of the world, the UNHCR had demonstrated a very good track record over the past years to reimburse $120 million to Hong Kong, and it would soon be making a further reimbursement of $20 million to Hong Kong;

- on top of that, the UNHCR had also spent some $1.5 billion on the VM programme in Hong Kong during the past seven to eight years. This was 50% more than its debt owed to Hong Kong;

- it should be noted that the UNHCR had been providing service in Hong Kong for several decades, spending hundreds of millions of dollars in assisting refugees passing through Hong Kong. He hoped that this good track record would inspire Hong Kong’s faith and confidence in the UNHCR; and

- as regards the possibility of putting back the footnote in the financial statement, it was impossible for him to make any commitment because the matter should be decided by the Executive Committee of the UNHCR, the members of which comprised 46 member countries including the UK, China and others.

The Secretary for Security said that -

- it was not true that without the footnote, there would be no record of Hong Kong expending money for the care and maintenance of VMs on behalf of the UNHCR; and

- the fact was recorded in the UNHCR’s Executive Committee annual report which was lodged with the General Assembly of the UN.

6.16 In response to the Committee’s written enquiries after the public hearing, Mr Assadi advised vide Appendix 13 that -

- it was the view of the UN Board of Auditors that the commitment of the UNHCR under the SOU did not meet the criteria of a debt and therefore it was not appropriate to issue such a footnote in its annual accounts; and

- a basic technical error had inadvertently been committed when marking the amounts as “recoverable” in the Hong Kong Government accounts without due attention to the proviso of “subject to the availability of funds for this purpose” in the SOU and, as it happened, the eventuality - shortage of funds - foreseen in the proviso had come to pass.


6.17 Referring to paragraph 2.26 of the Director of Audit’s Report, the Committee pointed out that all the Southeast Asian countries had had their VM expenditure settled directly by the UNHCR and none of them experienced the same problems faced by Hong Kong. The Committee asked why the UNHCR treated Hong Kong in such an exceptional manner. Mr Assadi said that -

- there were actually different arrangements for different countries;

- in some countries, the UNHCR worked on the basis of reimbursement, while in some other countries, it made direct payment for VM expenditure; and

- in some cases, for example the Organization for Economic Co-operation and Development (OECD) countries in Europe and North America, the UNHCR did not have to pay for the cost of maintenance of VMs.

6.18 In view of the improving financial position of the UNHCR, the Committee wrote to the UNHCR after the public hearing to enquire about its arrangements in the allocation of funds to countries dealing with the care of VMs, in particular to Hong Kong. Mr Assadi replied vide Appendix 13 that -

- it had been clearly stated in the SOU that the UNHCR was committed “to meet the costs of the care, maintenance and social services required by all asylum seekers ...... subject to the availability of funds for this purpose” and this clause had always been interpreted as referring to funds available for Hong Kong;

- it should be noted that the UNHCR did not pay the costs of care and maintenance of asylum seekers or refugees in developed countries and Hong Kong, which had a developed economy, was not viewed by donors as a territory in need of funds despite these needs were regularly mentioned in the UNHCR’s funding appeals; and

- the UNHCR would not be able to give priority to allocating to Hong Kong funds that were donated to address acute refugee crises in less developed countries throughout the world.

6.19 Responding to the Committee’s concern about the position after 1997 and whether the UNHCR would still have the liability towards the future Hong Kong Special


Administration Region (HKSAR), Mr Assadi said that it was not possible for him to give a categorical answer beyond what were contained in the SOU reached between the UNHCR and the Hong Kong Government. He added that the SOU was a very important commitment which the UNHCR would take very seriously and that was reflected in the track record of the UNHCR’s regular repayments in the past years. The Secretary for Security said that -

- the change of sovereignty in 1997 would not affect the HKSAR’s ability to recover the outstanding advances from the UNHCR;

- the outstanding advances were a matter between the UNHCR and the Hong Kong Government rather than the UK Government. Although UK was no longer the sovereign of Hong Kong after 1997, the UNHCR would still have the liability to repay the money to the Hong Kong Government. The future Government of the HKSAR would be in no worse position to recover the advances made pursuant to the UNHCR’s agreement than the present Government;

- the SOU, which covered a variety of issues including the screening arrangement for new VM arrivals, was not the only relevant document. The financial part of the SOU was subsequently turned into a formal agreement between the Hong Kong Government and the UNHCR which had been rolled forward year by year ever since;


- the agreement, according to legal advice, was a contractual debt owed by the UNHCR to the Hong Kong Government. The fact that it was not legally actionable was because the UNHCR was covered by the International Organization and Diplomatic Immunities Ordinance;

- in the numerous correspondence exchanged with the UNHCR during the past years, Hong Kong Government had never had the impression from the UNHCR that its agreements with Hong Kong would lapse after 1997;

- moreover, in accordance with Article 160 of the Basic Law, all contracts and documents signed by the Hong Kong Government should remain in effect after 1997; and

- the Administration would be happy to clarify the matter with the UNHCR Headquarters in Geneva.

6.20 Conclusions and Recommendations. The Committee -

- express grave concern that the advances had accumulated to HK$1,005.7 million as at 31 March 1995, and that the amount reimbursed to the Government since 1989 was only $119.9 million which was about 11% of the total advances;

- regret that despite the repeated pledges of its commitment to repay the cost in the maintenance of Vietnamese migrants in Hong Kong, the UNHCR has failed to demonstrate a genuine effort in honouring its commitment;

- express dismay that Hong Kong alone has been singled out, amongst countries in the Southeast Asian Region, in not being fully reimbursed by the UNHCR for all expenses incurred in the maintenance of Vietnamese migrants;

- wish to point out that there have been significant changes in the circumstances since the Financial Secretary first invoked Section 20 of the Public Finance Ordinance and approved the charging of the advance accounts in 1989, including:

(a) the UNHCR has remarked in its letter to the Committee dated 19 December 1995 that its commitment under the Statement of Understanding does not meet the criteria of a debt and that it was a basic


technical error to mark the advances on Vietnamese migrants as “recoverable” in the Hong Kong Government accounts;

(b) the UNHCR’s financial position and the attitude adopted by its donors have clearly demonstrated that it may not be able to fully repay the outstanding advances;

(c) the UNHCR has asserted that it would not give priority to allocating funds to Hong Kong;

(d) there are indications that the UNHCR’s financial position had improved during the last few years but the repayments had not increased correspondingly; and

(e) the track record of repayment by the UNHCR of the money owed to Hong Kong has suggested that even if it has not become a bad debt, it should at best be described as a doubtful debt;

- consider that the premises which the Financial Secretary, the Secretary for the Treasury and the Secretary for Security had relied upon in mid-1989 to justify the use of the advance accounts mechanism are no longer valid;

- note that the policy intent of the Public Finance Ordinance is clearly directed towards the control of public expenditure and as such the meaning of “advances which are recoverable” in Section 20 of the Ordinance should be interpreted strictly, including: being acknowledged by the debtor, being legally enforceable, having a pre-arranged schedule of repayment and capable of being recovered within a reasonable period of time;

- recommend that the Administration should define more clearly the authority of the Financial Secretary as well as the meaning of “recoverable” under Section 20 of the Public Finance Ordinance along the lines suggested by the Committee;

- consider the interpretation of the meaning of “recoverable” by the Administration is stretching its ordinary meaning to, if not beyond, breaking point and strongly recommend that the Financial Secretary should immediately discontinue the practice of charging expenses incurred in the care


and maintenance of Vietnamese migrants to the advance accounts. Instead, the Administration should seek funding approval from the FC for such advance expenditure. The Committee consider that such arrangement will only enhance the public accountability of the Government and do not accept the Secretary for the Treasury’s view that this would send a wrong message to the international community that Hong Kong no longer expects full reimbursement from the UNHCR;

- recommend that the Administration should ensure that all payment vouchers and supporting evidence for charging the advance accounts (or an expenditure account upon FC’s approval) be kept properly, and the UNHCR should be invited to see these records regularly and to accept them as evidence of the UNHCR’s liability to the Hong Kong Government, so as to honour its commitment regarding the maintenance of the Vietnamese migrants in Hong Kong;

- express grave concern about the UNHCR not comfirming its existing liability to the Hong Kong Special Administrative Region;

- consider that, by imposing the policy of “Port of First Asylum” on the territory, the British Government has undeniable obligations towards Hong Kong in resolving the matter before the transfer of sovereignty in 1997 and urge that it should provide more effective assistance to the Hong Kong Government, including the following:

(a) clarifying with the UNHCR Headquarters in Geneva to ensure that its agreements with the Hong Kong Government would not lapse after 1997;

(b) pressing the UNHCR to put a footnote (similar to the 1993 footnote) in its audited financial statements as long as the outstanding advances have not been completely repaid;

(c) making more financial contributions to Hong Kong as well as appealing to the international community to make more donations to the UNHCR for the Vietnamese migrants programme in Hong Kong;

(d) making all endeavours to recover the advances from the UNHCR; and


(e) speeding up the repatriation programme with a well-defined time frame for its implementation; and

- recommend that, in the light of the substantial outstanding issues raised in this Report being unresolved, and the material sum of public money involved, the Director of Audit be invited to examine the role and obligations of the British Government in the whole Vietnamese refugees/migrants issue insofar as it relates to Hong Kong, and conduct a follow-up study with a view to reporting to the President of the Legislative Council in October 1996.

EDUCATION DEPARTMENT

Under-utilization of government school sites

6.21 In an audit review on the use of the vacant premises of the Tsuen Wan Government Secondary Technical School (TWGSTS), the Director of Audit highlighted the problem of inadequate co-ordination amongst the relevant government departments during the whole planning process. According to paragraphs 3.4 and 3.7 of the Director of Audit’s Report, the Government Property Agency (GPA) recommended in June 1992 that the TWGSTS site should be disposed of by public auction but one month later, in July 1992, the GPA agreed with the Director of Education’s proposal to use the school site as a resource centre for the education of gifted children. The Committee asked the Government Property Administrator to explain why there was a change of mind within such a short period. The Government Property Administrator said that -

- the objective of the GPA was to formulate proposals for redevelopment or disposing of under-utilized government sites with a view to achieving their maximum efficiency and value for money;

- during the past years, the GPA had identified a significant number of under-utilized government sites which were subsequently disposed of for sale or redevelopment;

- the TWGSTS site was one of a number of such sites so identified, which the GPA had hoped to bring forward under the 1994-95 land sale programme;

- notwithstanding the wish of the GPA, it was necessary to take into account the practical problem faced by the Education Department at the time, i.e. the need to find a site to accommodate the proposed Gifted Children Education Resource Centre; and

- had the TWGSTS site not been used as the resource centre, the Administration might end up having to lease expensive alternative accommodation for the purpose.

6.22 The Committee asked whether it was the general practice of the Government to undertake cost-benefit studies to assist them in deciding on the use of any specific sites, the Government Property Administrator said that it was neither necessary nor possible to do a cost-benefit study on each and every individual site. In a letter dated 1 December 1995 to the Committee (Appendix 14) after the public hearing, the Government Property Administrator further elaborated that -


- in considering the use of any vacant sites, the GPA aimed at striking a balance between the costs and the benefits of continued government use of the sites;

- if continued government use was justifiable, this would be identified and agreed amongst the relevant government departments; and

- only where there was not a strong case for continued government use would the GPA conduct a cost-benefit study to determine whether a specific site should be released for commercial or residential development.

6.23 In response to the Committee’s enquiry about the prevailing policy and procedure for dealing with under-utilized government sites, the Secretary for the Treasury said that -

- in deciding on the use of a particular site, the Administration would look at a number of factors. Other than the consideration of costs and benefits, it was necessary to take into account both the short-term and long-term requirements of the Government;

- the Administration accepted the comments made by the Director of Audit that there was room for improvement as far as the planning for under-utilized government sites was concerned and new procedures were being considered to rationalize the whole planning process;

- the current thinking was that rather than vesting the entire responsibility in the GPA, the planning for the use of any vacant sites should be done by an inter-departmental committee involving the relevant policy branches and departments;

- consideration would first be given on the original purpose of land use and whether there was still the need for such use in the medium and long terms. If the conclusion was in the negative, further consideration would be given to whether the site would be needed for other government, institutions and community purposes;

- only when all possibilities of government use had been ruled out that a decision would be taken to release a particular site for sale or redevelopment; and

- he hoped that the new procedure could be finalized in one to two months’ time and then this would be promulgated to policy branches and departments.


6.24 Referring to the insistence of the Education Department in using the TWGSTS site as the Gifted Children Education Resource Centre, the Committee questioned why the Department adopted such an inflexible approach and whether any consideration had been given to obtain the donor’s agreement to use other alternative sites proposed by the GPA for the establishment of the resource centre. The Director of Education said that -

- in the whole planning process in respect of the resource centre, the prime consideration of the Education Department was more on finding the most appropriate location for the facility and meeting with the planned schedule rather than acceding to the donor’s preference of its location;

- given the fact that the resource centre would be the only one of its kind in the whole territory, it was important that it should be conveniently located and easily accessible to its users;

- the Education Department did attempt to identify alternative sites for the resource centre but found no other sites more suitable than the TWGSTS site in terms of availability and accessibility;

- in the final analysis, the Department decided to adhere to the original proposal of reprovisioning the TWGSTS into the resource centre; and

- the resource centre had been opened for some time and the users were quite satisfied with the centre.

6.25 At the request of the Committee, the Director of Education wrote on 5 December 1995 (Appendix 15) providing a list of activities held at the resource centre since it was opened in July 1995 as well as the activities planned for the rest of the 1995-96 school year. The Director added that the resource centre was still not operating to its full capacity because some of its facilities, such as the computer room, language laboratory, library etc., had yet to be installed. He expected that most of the facilities would be ready by late December 1995.

6.26 Having regard to the Director of Audit’s observation that there was significant redevelopment potential of the TWGSTS site, the Committee made enquiries of the Government Property Administrator after the public hearing on whether it was still the Government’s intention to continue its search for an alternative site for the reprovisioning of the resource centre in order to release the site for other purposes. The Government


Property Administrator replied vide Appendix 14 that depending on the availability of resources, it was still his wish to consider the option of reprovisioning the resource centre to other suitable accommodation in order that the TWGSTS site could be redeveloped in accordance with laid down policies and procedures, having regard to the overall situation on under-utilized sites.

6.27 The Committee noted that there had apparently been a delay on the part of the Secretary for the Treasury in reaching a timely decision on the use of the TWGSTS site during the process of negotiations amongst the departments concerned. Referring to paragraphs 3.15 and 3.16 of the Director of Audit’s Report, the Committee pointed out that the Secretary for the Treasury had seemingly failed to give prompt response to the correspondence and repeated reminders from both the Government Property Administrator and the Director of Education. The Committee invited an explanation from the Secretary. The Secretary for the Treasury said that -

- he accepted that the Finance Branch was wrong for not making the timely replies and he agreed that the subject officers should have dealt with the correspondence in a quicker manner; and

- as a result of the incident, an internal circular had been issued setting out the guidelines to be adopted in future for the monitoring of correspondence by the Finance Branch.


- note that the use of government school sites as offices and educational services centres on a long-term basis is a gross under-utilization of valuable government land and recommend that every effort should be made by the departments concerned to ensure maximum utilization of any government land;

- consider that there had been inadequate co-ordination amongst the relevant government departments regarding the use of the Tsuen Wan Government Secondary Technical School site;

- consider that the previous working procedures adopted by the Administration concerning the planning of under-utilized government sites were inflexible and welcome the review of the procedures undertaken by the Secretary for the Treasury with a view to rationalizing the whole planning process;


- urge for the early implementation of the new working procedures;

- note the explanations given by the Secretary for the Treasury on the reason why he did not respond promptly to the correspondence and requests of the Director of Education and the Government Property Administrator for an early decision on the use of the Tsuen Wan Government Secondary Technical School site, and express their concern at the inordinate delay in reaching a decision on the matter, which resulted in insufficient time being made available to the parties concerned to look for an alternative accommodation for the Resource Centre; and

- note that as a direct result of this case, the Secretary for the Treasury has issued an internal circular setting out guidelines to ensure that similar problems will not recur.

GOVERNMENT LAND TRANSPORT AGENCY

Overtime allowance paid to chauffeurs and motor drivers

6.29 In examining the Director of Audit’s Report on the overtime allowance paid to chauffeurs and motor drivers of the Government Land Transport Agency (GLTA), the Committee’s major concern was on the prolonged overtime work of chauffeurs, particularly amongst those working in the Government Secretariat. According to a simulation exercise conducted by the Audit Department as reported in paragraph 4.10 of the Director of Audit’s Report, about 62% of the overtime work performed by government chauffeurs and motor drivers of the GLTA’s transport pools could be reduced by re-scheduling their working hours. The Committee invited the Government Land Transport Administrator to comment on the various options made in the Director of Audit’s Report, in particular the proposals of staggering the working hours and granting time off in lieu of overtime allowance. The Government Land Transport Administrator said that -

- the principal purpose of setting up a government transport pool was to provide a back-up service to government departments and to respond to emergency situations;

- it was a standby facility which was not intended or planned to be utilized 100% at all times;

- whilst acknowledging the various options put forward by the Director of Audit, it was the initial view of the GLTA that the proposals, such as re-structuring shifts, staggering working hours and rewarding overtime by time off, would unnecessarily impair the flexible nature of the operation;

- nonetheless, the Administration agreed that it should examine ways to improve the prolonged overtime situation of Government chauffeurs. The GLTA had started a review and the Director of Audit’s suggestions, along with a number of other options for improving the transport pool service, would be examined; and

- the Administration’s review would be a full-scale one, examining all aspects of the service including the operational efficiency, cost-effectiveness, customer satisfaction, etc., with a view to introducing a system of quality management into the transport pool.

6.30 The Committee noted that since 1957, the chauffeur grade staff had been granted a consolidated overtime allowance (COA) for any overtime work in excess of one hour and up to 100 hours. It was further noted that in one extreme case a chauffeur was entitled to


the full COA despite the fact that he had only worked six hours of overtime during that particular month. The Committee questioned whether the COA was a fair system. The Government Land Transport Administrator said that -

- he agreed that the COA system should be improved to achieve a more even distribution of workload and part of the review currently being undertaken would be looking at the actual mechanism of the calculation of COA; and

- one of the proposals being considered was to try and divide the work more evenly by providing support to the chauffeurs posted in the Government Secretariat, amongst whom the problem of prolonged overtime was most serious, from the GLTA pool to ensure that everyone was working more or less on the same basis.

The Secretary for the Civil Service added that -

- in his view, the COA was a cost-effective system because by adopting the system, the Government was spared a lot of calculations in the payment of overtime allowance to chauffeurs;

- the system also represented a cheaper arrangement because the COA was calculated in such a way that 100 hours of overtime work of chauffeurs was equivalent to 66 hours of overtime work paid at the normal standard rate;

- statistics had shown that most of the chauffeurs in the Government Secretariat were working up to 100 hours per month; and

- he agreed with the Government Land Transport Administrator’s comment that the problem was more a question of distribution of work and he also supported the proposal for wider use of the transport pool so that the workload could be more evenly distributed amongst all the chauffeurs employed within the Government.

6.31 According to paragraph 4.21 of the Director of Audit’s Report, the GLTA’s practice of granting chauffeurs time off for work on Sundays in addition to the payment of COA was in contravention of the guidelines issued by the Secretary for the Civil Service. The Committee questioned why this irregular practice was not noticed until it was made known by the Director of Audit and whether there was any problem with the Civil Service Branch’s monitoring mechanism in this respect. The Secretary said that -


- although the guidelines were issued by the Civil Service Branch (CSB), it should be the responsibility of the controlling officers of the departments to observe and apply the guidelines in a proper manner;

- it was not possible for the CSB to perform the policing function to check on each and every individual department that guidelines were being followed; and

- in this particular case, as soon as the matter was brought to the attention of the CSB and the GLTA, the practice had stopped.

6.32 The Government Land Transport Administrator said that he accepted the responsibility for not following the CSB guidelines but he explained that the arrangement had been made with good intention and in the interests of the staff concerned. He agreed that the GLTA should have consulted the CSB first before making such an arrangement.

6.33 Referring to the Secretary for the Civil Service’s comments in paragraph 4.23 of the Director of Audit’s Report concerning the sensitivity of and the practical difficulties in implementing some of the changes proposed by the Director, the Committee invited the Secretary to elaborate on his comments. The Secretary for the Civil Service said that -

- in his view, the present system of granting COA to chauffeurs was a pragmatic practice although he accepted that in certain circumstances there were difficulties in implementing it in a fair manner;

- the system had been in place for some time and any revisions to it had to be considered carefully, in consultation with the staff concerned;

- because of the long history of the system, it was understood that many staff had actually taken the allowance as part of their normal salary;

- it was in the context of possible reaction from staff and the problems mentioned above that he thought there was sensitivity in the issue; and

- he agreed that there should be a comprehensive review of the whole system.

6.34 Referring to paragraph 4.19 of the Director of Audit’s Report showing that on average the chauffeurs in some policy branches had to work about six hours of overtime a day, the Committee asked whether the Administration agreed that the situation of


consistently prolonged overtime for chauffeurs was undesirable and whether consideration would be given to encourage senior government officials to use alternative means of transport, such as public transport, for attending private social functions during evenings and weekends. In response, the Secretary accepted that prolonged overtime work was not good to the staff’s physical well-being. As regards the proposal of encouraging government officials to use alternative transport, the Secretary said that -

- the provision of government transport for senior government officials to attend official functions was part of their entitlements and conditions of service;

- as senior government officials were expected to maintain contacts with the public and the community, it was not unusual that they were invited to attend social functions during evenings and weekends, and it would be very difficult to distinguish whether the social functions they attended were for private or public purposes;

- on certain occasions, it was not only reasonable but also appropriate for the officials to travel on government transport; and

- personally he thought that the Committee’s suggestion was worth considering but its practicability had to be carefully examined and he would raise the matter for discussion with his colleagues in the civil service.

6.35 On a follow-up question by the Committee about practices in the private sector, the Government Land Transport Administrator said that -

- the GLTA had recently conducted a review of vehicle provision in the private sector, mainly amongst the public utilities companies, which revealed that private companies provided comparable, if not better, benefits to their senior executives;

- it was also understood that senior executives in the private sector had absolute and exclusive use of their company cars; and

- in the government, even at the policy secretary level, the official was provided with only a departmental car which, theoretically, could be used by any one in the department.



- express concern about the situation of prolonged overtime work of chauffeurs working in the Government Secretariat and other government departments who serve designated principals and consider that such situation is not conducive to the physical well-being of the staff concerned;

- recommend that the Government Land Transport Administrator should, in consultation with the Civil Service Branch, consider ways of reducing the excessive overtime workload of chauffeurs, for example, by means of pooling arrangement and possible use of public transport;

- consider that there is scope for improving the administration and control of

overtime allowance in the Government Land Transport Agency and recommend that the Government Land Transport Administrator should use time off in lieu to compensate for overtime work more extensively and consider introducing a system of staggered working hours to meet transport demands outside normal working hours in order to reduce the incidence of overtime work;

- consider it wrong in principle that the consolidated overtime allowance should be treated as part of the normal salary of chauffeurs and express concern that such a system of payment is neither conducive to efficient services nor provide sufficient incentive for them to work overtime; and

- note that the Government Land Transport Administrator will conduct a comprehensive review of the present operation and staff deployment systems in the transport pool of the Government Land Transport Agency and wish to be kept informed of the outcome of the review.

INTELLECTUAL PROPERTY DEPARTMENT

Trade Marks Registry - The registration of trade marks

6.37 The Committee noted that the objective of the audit review was to evaluate the efficiency of the Trade Marks Registry (TMR) of the Intellectual Property Department (IPD) in the processing of applications for trade marks registration. The review revealed the long turnaround time taken by the TMR to process trade marks applications and the accumulation of a large backlog of outstanding cases in the Registry.

6.38 Whilst recognizing that the IPD had since July 1995 been working within its performance pledge of processing 70% of trade marks registration within 13 months from the date of application, the Committee were concerned with the continual increase in the number of outstanding applications. Referring to a number of consultancy studies commissioned by the IPD during the past few years, the Committee asked how far these studies had helped identify the problems and improve the office efficiency. The Director of Intellectual Property explained that -

- of the four studies referred to in the Director of Audit’s Report, two were management studies undertaken respectively by the Government Efficiency Unit and a private consultant, which examined ways of increasing the efficiency and productivity of the IPD, and the other two were computer studies which were in connection with the development of the computer systems for the Department; and

- the private consultant’s study had been completed and most of the recommendations had been implemented.

6.39 In response to the Committee’s concern about the backlog of outstanding cases, the Director said that -

- the number of outstanding cases had to be looked at realistically because as long as the IPD continued receiving trade marks registrations, there would be outstanding cases;

- the situation of having outstanding cases would never disappear because in accordance with the requirements of the Paris Convention for the Protection of Industrial Property as pointed out in paragraph 5.16 of the Director of Audit’s Report, search for conflicting trade marks of an application could not be performed within the first six months from the date of application;


- comparing to some overseas countries, such as United Kingdom, United States, Japan and Korea, the situation in Hong Kong was not too unsatisfactory and there was no comparable administration which had extremely low numbers of cases outstanding;

- the IPD would continue to do their best to reduce the number of outstanding cases and through efforts to increase productivity, the Department had been able to reduce the number of outstanding cases from 18,800 as of 31 March 1995 to 16,410 as of 31 October 1995, representing a 12.7% reduction in the backlog; and

- the main objective of the IPD was to reduce the amount of time required to process the applications from the existing 13 months to the ideal target time of issuing first examination reports in seven to eight months.

6.40 Noting that the IPD’s ideal target of seven to eight months turnaround time was more an international norm, the Committee asked why this international norm was not taken as the performance target and how the existing performance pledge of 13 months was determined, the Director said that -

- the performance pledge of 13 months’ processing time for trade marks registration was set to be a realistically achievable target having regard to the IPD’s staffing levels and the substantial increase in the number and complexity of applications consequent upon the introduction of service marks registration;

- the performance pledge was also set on the basis of consultation with the profession and the Law Society;

- it was difficult to draw comparison on the length of processing time amongst different jurisdictions which might be using different processing standards; and

- Hong Kong had all along been adopting a very stringent standard in trade marks registration.

6.41 In reply to the Committee’s further enquiry about the average time of processing trade marks applications by the neighbouring countries, the Director advised that the turnaround time was 27 months in Japan, 13 months in South Korea and nine to 12 months in Singapore. In his written submission to the Committee vide Appendix 16, the Director


further clarified that the ideal target of seven to eight months turnaround time could not necessarily be achieved without an enhancement of staff resources. Assuming increases in trade marks applications of no more than 8% per annum and no reduction in staff strength below current levels, he projected that the ideal target could be achieved not earlier than the end of the financial year 1997-98.

6.42 Referring to the table in paragraph 5.13 of the Director of Audit’s Report which showed an upsurge in terms of both the numbers of applications received and outstanding cases in the year 1991-92, the Committee asked whether there was a lack of foresight and adequate manpower planning on the part of the IPD to cope with the increased workload. The Director said that -

- the massive increase of applications was the result of the enactment of the Trade Marks (Amendment) Ordinance in 1991 which provided for the registration of service marks with effect from March 1992;

- the increase in both the quantity and complexity of workload as a result of the change of the law was well anticipated but it was hoped that the existing staffing would be able to cope with the increased workload after they had gained experience and got acquainted with the new working procedure;

- it was a conscious decision not to go for a significant increase of staff to avoid an overstaffing situation in future, bearing in mind that the work of the IPD was very specialized and redeployment of staff to other offices would be difficult; and

- as it now stood, the backlog situation had improved and the IPD was confident that the number of outstanding applications would continue to fall.

6.43 In reply to the Committee’s enquiry on whether consideration would be given to employing some short-term contract staff to clear the existing backlog, the Director said that the proposal appeared sound in principle but practical difficulties in implementation were envisaged. Given the very specialized nature of the work of the TMR which required staff with a good degree of experience and training, it was unlikely that short-term contract staff would have the career commitment to perform at the standard and the proper level of throughput required.


6.44 In light of the Director’s comments on the employment of short-term contract staff, the Committee questioned the rationale for the IPD to employ temporary staff instead. The Director said that -

- the temporary staff were mainly employed at the clerical and secretarial levels to carry out specific assignments and to supplement back-up services on the operational side;

- in accordance with existing government practice, the temporary staff were employed on a continuous contract of not more than three months and such contracts were renewable after a brief break of service, depending on operational need and subject to satisfactory performance and conduct of the employees; and

- he accepted that the use of temporary staff was not ideal and would reduce the reliance on temporary staff when the Department’s permanent staffing situation allowed.

6.45 Responding to the Committee’s concern about the problem of manpower wastage of the IPD, particularly at the senior level, the Director said that -

- except for the Director post, no staff members at the directorate level had left the Department since it was established in July 1990;

- the wastage problem occurred mainly at the Intellectual Property Examiner level and the Department had altogether lost 12 staff since 1990-91, including one at the Chief Intellectual Property Examiner level, three at the Senior Intellectual Property Examiner level and eight at the Intellectual Property Examiner level; and

- emigration had been a major factor in staff wastage.

6.46 In reply to the Committee’s enquiries about staff training, the Director said that he did not entirely agree with the Director of Audit’s observation that the IPD provided a fragmented and unsystematic training for its staff. He explained that -

- as new staff often came in small groups and irregular intervals, it was difficult to organize very systematic staff training programmes;


- all new staff were nonetheless given induction and on the job training. In addition, staff were provided with training through seminars and small group job-related courses covering both the legal and practical aspects of their work; and

- on the recommendation of the private consultant, the IPD had since 14 November 1995 appointed a full time training officer to look after the Department’s staff training programmes.

6.47 Referring to the figures presented in paragraph 5.21 of the Director of Audit’s Report suggesting a reduction in the output of Intellectual Property Examiners during the past four years, the Committee asked whether the IPD had any action in hand to improve the staff performance. The Director said that -

- the figures presented by the Director of Audit had to be looked at in a proper context, having regard to the changes in the nature and complexity of the work performed by the Examiners;

- the introduction of service marks registration in 1992 had significantly increased the complexity and difficulties of the work involved, and as a result lengthened the processing time required;

- the IPD was trying to set performance target for the staff with a view to increasing their productivity, and staff had been advised to come to quick decisions and give clear answers to applicants rather than entering into protracted correspondence with applicants over their applications; and

- action was in hand to amend the Trade Marks Ordinance which, if enacted, would simplify the registration process.

6.48 In his subsequent written submission to the Committee (Appendix 16), the Director said that the purpose of the proposed amendments to the Trade Marks Ordinance was to provide a legal framework for trade marks protection fully in line with international standards. Opportunity would also be taken to simplify the registration process by -

- broadening the types of registrable trade marks;

- amalgamating the registration requirements under Parts A and B of the Register into one;


- allowing multi-class registration in one application;

- removing the current requirements of recording associate marks; and

- simplifying the requirements for licensees records, changes of name and ownership.

6.49 The Committee noticed that the efficiency of the trade marks registration process had to a certain extent been affected by the performance problems of the IPD’s computer system, the Trade Marks Image System (TMIS). The Committee asked how far the system supplier should be held responsible for the performance problems of the TMIS. The Director said that -

- some of the problems of the TMIS, such as the problem of missing images, were still being investigated by the system supplier and the IPD was not in a position to tell where the responsibility laid; and

- it should however be borne in mind that the TMIS was an evolving computer system which was developed at a time when computer technology was itself developing. The system therefore benefited from some of the advantages and at the same time suffered from the disadvantages of the technological advance.

6.50 In his written submission to the Committee subsequent to the public hearing (Appendix 17), the Director clarified that -

- the supplier was responsible for the maintenance of the computer system, including provision of support for hardware, software and fault diagnosis;


- the supplier had produced a preliminary report on the performance problems of the TMIS and efforts were being made by the supplier to identify the causes and rectify the problem of missing images within the original contract payment;

- by mid-September 1995, all the 1,500 missing images had been recovered; and

- it was expected that a conclusion could be reached in identifying the causes of the problems with the TMIS by the end of December 1995.

On 27 January 1996, the Director informed the Committee that the problem of missing images of the TMIS had been fully analysed and corrective action taken to resolve the problem.

6.51 In reply to the Committee’s subsequent enquiry about the availability of computer expertise within the IPD, the Director confirmed that there was a team of two information technology professionals from the Information Technology Services Department (ITSD) stationed permanently in the IPD. This project team had also had the technical backup from the ITSD.


- express concern about the large number of outstanding applications and the long turnaround time for processing applications for registration of trade marks;

- welcome the Director of Intellectual Property’s target to issue the substantive examination report in seven to eight months after the filing of an application in order to bring in line with international norms and note the Director’s advice that adequate resources would be required to achieve the ideal performance target;


- consider it desirable that the Intellectual Property Department should achieve the ideal performance target as soon as possible in order to maintain Hong Kong’s competitiveness in the international market, and believe that the overall economic benefit to Hong Kong that may be brought about by the improved efficiency in trade marks registration will outweigh the additional resources so incurred;

- recommend that the Intellectual Property Department should improve the performance of its computer systems in order to enhance the efficiency of the Trade Marks Registry and that it should work closely with the Information Technology Services Department to develop the computerized file management system without any further delay;

- recommend that the Intellectual Property Department should take action to improve the performance of the temporary staff of the Trade Marks Registry and to reduce the reliance on temporary staff;

- wish to be kept informed of the progress of the implementation of the recommendations of the 1994 consultancy study to improve the efficiency of the Trade Marks Registry; and

- wish to be kept informed of the progress of the exercise to modernize and simplify the Trade Marks Ordinance.

LANDS DEPARTMENT

Computerization of land information in the Government

6.53 The Committee were concerned about the significant delay in the implementation of the Computerized Land Information System (CLIS) in the Lands Department, as a result of which the realization of the tangible saving of 110 posts (mainly in the Technical Officer grade) in the then Buildings and Lands Department had apparently been deferred. The Committee noted that when the Finance Committee (FC) of the Legislative Council approved funding for the implementation of the CLIS in June 1987, the FC was informed that the system would be in full operation in 1992-93. It now turned out that the CLIS was only implemented in five of the 12 district survey offices on a limited basis by 1994-95 and that the target date for its full implementation had to be postponed to August 1996 due to the following reasons identified in the audit review -

- underestimation of the complexity of the CLIS;

- underestimation of the data conversion effort;

- inadequate monitoring of project progress; and

- the premature deletion of posts before the scheduled completion of data conversion in the district survey offices.

6.54 Referring to paragraphs 6.14 and 6.15 of the Director of Audit’s Report, the Committee asked why five more months were needed to complete the preparation of tender specifications. The Committee also questioned whether the complexity of the tenders warranted the necessity of paying overseas visits to attend demonstrations, having regard to the fact that many multinational computer companies had established branch offices in Hong Kong in 1987 and that as a result of the time spent on overseas visits, five more months were taken for tender evaluation. In response, the Director of Information Technology Services explained that -

- at the time when tender specifications were prepared in 1987, very few hardware and software on geographic information systems were available in Hong Kong;

- visits to overseas organizations which had successful experience in developing geographic information systems were considered useful in helping the Government to define its requirements for the CLIS;


- there was lack of experience and expertise in both the Government and the local computer field in developing geographic information systems as the CLIS was the first project of its kind developed in Hong Kong;

- in fact, the visits were recommended by the local multinational computer companies, and visits were subsequently made to the United States and Australia; and

- the outcome of the fact-finding trips had indeed contributed to the drawing up of the tender document to which the tenderers were more receptive.

6.55 The Committee invited the Director of Lands to comment on paragraph 6.32 of the Director of Audit’s Report which pointed out that the original implementation plan of the CLIS could not be met because of the gross underestimation of the complexity of the project. The Director of Lands said that the CLIS was not only a completely new system to Hong Kong but geographical information system technology in general was still in its developing stage even for the more advanced countries.

6.56 The Committee noted from paragraph 6.2 of the Director of Audit’s Report that the Director of Lands had established an inter-departmental working group in April 1982 to define the basic requirements of the CLIS. However, the justification for the CLIS was only confirmed by the Finance Branch of the Government Secretariat in May 1986 after the completion of a requirements justification study. The Committee questioned what had been done by the working group and why it took so long to establish the need for the CLIS. In response, the Government Land Surveyor said that -

- the inter-departmental working group was composed of representatives from the Land Registry, the Information Technology Services Department and the Lands Department;

- it was the original intention of the working group to commission outside consultants to conduct a pilot study examining the feasibility of implementing the CLIS based on the Government’s basic requirements for the proposed new system;

- due to an unsuccessful bid for funding to hire outside consultants, the pilot study was subsequently done in-house; and


- as a result of the changes and the lack of experience in the new technology, more time had been expended than originally planned.

6.57 Responding to the Committee’s enquiries on why data conversion was not included as an item in the CLIS contract, the Government Land Surveyor explained that -

- in view of the fact that data conversion required specialist skills, it was considered more desirable that the task be performed by the technical staff of the Lands Department who were familiar with the basic maps and the land record plans;

- as it was estimated that the exercise would require a long period (39 months) to complete, it was considered more economical if the job was performed in-house rather than by contracting-out;

- it was also expected that there would be manpower saving after the installation of the CLIS and the staff so released could be deployed to undertake the data conversion job; and

- data conversion eventually turned out to be far more complex than originally envisaged and more time was thus required to complete the exercise.

6.58 Whilst recognising that strenuous efforts had been made in the planning of the CLIS but a lot of problems still emerged in the planning and implementation of the project, the Committee asked whether the Government, with the benefit of hindsight, should have considered adopting an open specification method of tendering, i.e. the tenderers be invited to undertake design, procurement, system development and operation of the CLIS. The Committee pointed out that this approach had been quite commonly applied in other government projects, through which the Government’s time and money would be saved on doing research in an area which government officers were not familiar with and benefits would be gained from experience and expertise outside the Government. Moreover, through this “design and operate” approach, the contractor would be responsible to see to it that the computerized system was smoothly implemented according to the agreed design and schedule. In response, the Director of Information Technology Services said that the open specification and “design and operate” modes of tendering were useful and had been used in the development of a number of new computerized projects.

The Assistant Director of Information Technology Services added that -


- the open specification approach of tendering had actually been applied to this particular case to some extent; and

- the approved computer contractors had been invited to submit prototypes of system designs which could meet with the actual operational needs of Hong Kong, and they were then tested to ascertain their viability to the local environment.

6.59 Noting that the long delay for the full implementation of the CLIS was partly attributed to the premature deletion of posts imposed on the Lands Department by the Finance Branch for the purpose of honouring a commitment to cost savings made to the FC when seeking funding for the CLIS in 1987, the Committee asked whether the Lands Department had appealed against the deletion of posts. The Director of Lands said that -

- the premature deletion of posts had certainly created a lot of problems to the Department and attributed to the delay in the implementation of the CLIS; and

- in accordance with the established procedures, appeals were made to the Finance Branch and the Civil Services Branch but to no avail.

6.60 In response to the Committee’s enquiries as to whether there was an established channel through which an appeal could be lodged should there be conflicting views between the Finance Branch and the department concerned on honouring its commitment to the FC, the Deputy Secretary for the Treasury (1) said that -

- at the time of the appeal made by the Director of Lands, there was no established channel to resolve the differences;

- with the setting up of the Star Chamber following the implementation of the

policy of public sector reform, the Star Chamber met with heads of departments at an interval of six months to review their job performance and work progress;

- problems in relation to a major computerization project such as the CLIS would certainly be brought up for discussion at this forum; and


- should similar problems arise, timely advice would be sought from the Star Chamber.

6.61 Referring to paragraph 6.32 of the Director of Audit’s Report which mentioned that the Secretary for the Treasury would in future strike a pragmatic balance between honouring its commitment to the FC and ensuring that the departments concerned had the capability to deliver the project, the Committee asked what measures would the Government take to achieve the pragmatic balance. In response, the Deputy Secretary for the Treasury (1) said that -

- it was true that the Finance Branch had not been flexible enough in dealing with this computerization project;

- the problem was mainly due to the lack of sufficient and regular monitoring of the project;

- similar problems should not recur as it was now the practice to set up a steering committee to oversee the implementation of major computerization projects;

- staff from the Information Technology Services Department were represented on these project steering committees. In the case of very complex and major computerization projects, staff from the Finance Branch would also be represented so that they could get regular updates and monitor the situation closely;

- as far as the CLIS was concerned, a steering committee comprising representatives from the Lands Department, the Finance Branch and the Information Technology Services Department had been formed in May 1995 to monitor the implementation of the project;

- the project steering committee would conduct periodic assessments on the progress of the project. Depending on the seriousness of problems identified, action would be taken to report back to the FC of any remedial measures to resolve the difficulties encountered; and

- with the benefit of hindsight, consideration should have been given to reporting back to the FC if honouring the commitment to delete the posts would mean adversely affecting the implementation of the CLIS.


6.62 In response to the Committee’s enquiries, the Director of Lands confirmed that the CLIS did not include information on land revenues. Such information was contained in a separate system.

6.63 Referring to paragraph 6.18 of the Director of Audit’s Report which revealed that the Lands Department actually took four and a half weeks instead of one week as originally proposed to convert one basic map and the corresponding land record plan, the Committee asked the reasons for the significant variance between the estimated data conversion time and the actual data conversion time. In response, the Government Land Surveyor explained that -

- the undue length of time required for data conversion was caused largely by the underestimation of the complexity of the system which involved detailed and meticulous procedures of preparing maps and plans for conversion into digital forms;

- the originally data conversion time of one week was worked out on the basis of the result of trial runs conducted abroad to manually digitize a standard Hong Kong map; and

- the delay was further exacerbated by the additional time required to tidy up land records in the New Territories which were very complicated and dated back as early as in the 1890s.


- express concern at the delay in the implementation of the CLIS;

- note that undue length of time has been taken for procurement of the CLIS because of the failure of taking adequate account of the complexity of the system;

- recommend that for complex computerization projects with high development risks, strategies should be worked out at an early stage of the project to reduce the risks, and that consideration should be given to running a pilot project first before embarking on the implementation of the project;

- note the serious error in the underestimation of the length of time required for data conversion and the premature deletion of posts before the scheduled data conversion had been completed in the district survey offices;


- recommend that practical and realistic plans for data conversion should be worked out at an early stage with accurate assessment of the manpower and other resources requirements, and that where a commitment to delete posts has been made to the Finance Committee, the Administration should revert to the Finance Committee for advice, if honouring that commitment would adversely affect the implementation of the project;

- note the setting up of the CLIS Steering Committee to oversee the implementation of the project and recommend that, to avoid recurrence of similar delays in future computerization projects, the progress of a project should be monitored regularly and early action should be taken to address the problems identified;

- note the importance of the timely implementation of the CLIS and recommend that the Director of Lands should implement procedures to monitor the performance of the CLIS to ensure that good service is provided to users and that the objectives of the CLIS are met; and

- wish to be kept informed of the progress of the implementation of the CLIS.

MARINE DEPARTMENT

Management of Public Cargo Working Areas

6.65 In studying the Director of Audit’s Report on the management of Public Cargo Working Areas (PCWAs), the Committee were particularly concerned about the problems of monopolization of berthing spaces and the alleged triad infiltration into the operation of PCWA activities. The Committee noticed that most of the problems highlighted in the Director’s Report had also been the subject of discussion of the Panel on Economic Services and the Panel on Security during the last term of the Legislative Council. The issues had, however, largely remained unsettled and the Panels had expressed concern that the Administration’s proposal for contracting out the management of PCWAs would not solve the problems.

6.66 For the purpose of inquiring into the matters raised in the Director of Audit’s Report, the Committee held two public hearings on 25 November 1995 and 10 January 1996 with the public officers concerned and representatives of the Hong Kong Cargo - Vessel Traders’ Association Limited.

6.67 In an opening statement at the first public hearing on this subject held on 25 November 1995, the Director of Marine advised the Committee that -

- PCWAs were established to solve the problem of road congestion at the uncontrolled waterfronts;

- as the objective had been met, Government considered it the right time to withdraw from the management of PCWAs, and to obtain a fair return on the public investment and the full recovery of the operating costs;

- having regard to the views expressed by the Legislative Council, the Administration had adopted a public utility approach in the costing of PCWAs;

- the government effort towards privatization and cost recovery had, however, met with strong opposition, namely from operators who were receiving a subsidized service, from the Legislative Council which were opposed to the fee increases, and from the staff who were concerned with possible redundancies; and


- the Administration would like to call on the support of the Legislative Council in order to achieve the principle of full cost recovery as soon as possible because it would have a direct effect on the pricing and implementation of the proposed contracting out of PCWA berths, the first phase of which was planned to be in place before the end of 1996.

6.68 In their two written submissions to the Committee dated 8 and 18 January 1996 (Appendices 18 and 19) and oral evidence given at the public hearing on 10 January 1996, representatives of the Hong Kong Cargo - Vessel Traders’ Association Ltd informed the Committee that -

- whilst the first-come-first-serve allocation system had been introduced with good policy intention, it could not meet the operational needs of the cargo handling trade which required the provision of fixed berths where they could work on a regular basis;

- in order to secure a regular berth to work on, they had no alternative but to rotate their vessels so as to maintain the occupation of a particular berth, giving rise to the misunderstanding that there was monopolization of the use of berthing spaces by some operators;

- sub-letting seldom occurred and it was done only on a very limited basis. More often, it was in the form of co-operation and sharing of berths amongst barge operators in order to maximize the usage of berths at all times;

- the allegations of PCWAs being controlled by triads were unfounded, although there had been a few isolated cases of extortion. The Association had taken initiatives to report such cases to the police;

- the operators were extremely concerned about the Government’s proposal to privatize the berthing spaces and were worried that this would result in hefty increase in berthing fees and monopolization of the bidding by large companies and consortia. They were also aggrieved that they had so far not been given information about the Government’s privatization proposal; and

- they would prefer maintaining the status quo, which in effect allowed current operators relatively permanent access to fixed berths at the existing level of berthing fees.


6.69 Noting from paragraph 7.14 of the Director of Audit’s Report that a berthing space of 32 metres in length was reportedly worth $200,000 rental charges per month in the Tsuen Wan PCWA in the secondary market, the Committee invited comments from the Association representatives. The Committee also enquired about the general operating conditions of the cargo handling trade. In response, the representatives said that -

- they had no knowledge of such a sub-letting case and doubted the validity of the claim that a 32-metre berth could generate $200,000 rental profit per month;

- most of them were small operators mainly handling cargoes from China and their profit margin was very low and some of them were even operating at a loss at the moment;

- being affected by the recent economic reforms in China, their business was declining although they were optimistic and looked forward to future improvement in the situation;

- they were already operating under very difficult conditions and a hefty increase in berthing fees would drive them out of business; and

- the Marine Department (MD) should provide the trade with more information on the calculation of cost for running the PCWAs in order to justify the Department’s claim that the PCWAs were operating at a loss and that fee increase was necessary.

6.70 Responding to the Committee’s question on whether the present “monopolization” of berths by existing operators would create a situation whereby new comers to the trade or people who could not co-operate with them would be denied the use of berthing spaces at specific PCWAs, particularly those at popular locations, the representatives said that the situation would not occur as such operators could always make use of the fast-working berths provided under the existing system.

6.71 Referring to the representation of the Hong Kong Cargo - Vessel Traders’ Association Limited, the Committee invited the public officers to comment on the various points raised by the Association. The Director of Marine said that -

- the MD fully acknowledged that the trade required a certain degree of continuity in holding a berth and this was precisely the reason why the


Department had been taking a lenient attitude towards the present situation and did not strictly enforce the first-come-first-serve allocation system;

- it was also acknowledged that arising from the need of the trade, there was in existence a culture in the PCWAs that there was a certain degree of monopolization of particular berths by operators in some PCWAs;

- the Department had no knowledge of the financial position of the operators and the level of profits they obtained from their business. However, indications from all sources, including the Director of Audit, the consultants, the police as well as the Independent Commission Against Corruption (ICAC), pointed to the fact that the existing berthing fees were far too low and that similar commercial operations, depending on their locations, were charging fees at four to ten times higher;

- it was not true that the Administration was seeking a hefty increase in berthing fees. To achieve full cost recovery under the public utility approach, the Administration was proposing a total of 60% increase in fees over a three-year period and the increase was also intended to be phased at 20% increase each year; and

- in future, with the introduction of a tendering system, the market mechanism would assist in setting the level of charges at which the trade could rightly afford.

The Secretary for Economic Services added that -

- the Administration did not endorse the present situation even though some operators were willing to pay a higher fee through sub-letting, in order to gain access to some popular PCWAs;

- the existence of such a situation had also resulted in some unpopular berths not being used; and

- the proposed privatization through competitive bidding was considered a fair system although it was envisaged that as a result of which fees might increase in some areas, particularly those busy and popular PCWAs. This would however encourage operators to make use of the less popular PCWAs, such as those on the Hong Kong Island, which in a way would increase the efficiency of those presently under-utilized PCWAs.


6.72 Referring to paragraph 7.12 of the Director of Audit’s Report in which the MD had accepted that it was unable to exercise overall control of PCWAs given the strong-arm methods occasionally implied by some operators, the Committee asked whether the Director of Marine agreed that he had lost control of the management of the PCWAs. The Director of Marine said that -

- he disagreed that the Administration had lost total control of PCWAs although he conceded that the MD was unable to operate the first-come-first-serve berth allocation system, and that was exactly the reason why it was necessary to introduce changes to the system;

- apart from berth allocation, there were many other aspects, such as the management of cargo handling vehicles entering or leaving the PCWAs, which came under the control of the MD. These activities were managed in a successful manner; and

- as to the reference of the use of strong-arm methods employed by some operators, the Administration so far had no direct evidence to prove that this had actually happened although there were signs of certain elements within the PCWAs who controlled certain berths.

6.73 The Committee asked whether the Administration was aware of any triad influence in PCWA activities and, if so, what efforts would be made by the Administration to overcome the problem. The Director said that -

- in light of some allegations of triad influence, the police had conducted a number of investigations but no firm evidence of triad activities could be found;

- so far, there was only one investigation which had led to a prosecution in Tuen Mun;

- the MD was satisfied with the support rendered to them by the police in this matter; and

- on the management side, every effort had been made to reduce any opportunity for triad activities.

The Secretary for Economic Services said that the Administration took the allegations very seriously. Apart from getting assistance from the police, the MD had also sought the advice of the ICAC where appropriate.


6.74 Noting that the police had conducted a series of investigations and compiled a report on “A Study of Triad Activities in Cargo Handling Areas” in August 1994, the Committee invited the representative of the police to appear before the Committee and answer their queries at the second hearing on 10 January 1996. In response to the Committee’s concern about possible triad activities in PCWAs, the Director of Crime and Security of the Royal Hong Kong Police Force (RHKPF) said that -

- according to police investigation, there were basically two elements of criminality involved in PCWA activities: they included both criminals coming from outside as well as those who were in the trade but took advantages of the present unworkable berth allocation arrangement;

- triad infiltration was also found to range from extorting money from the cargo traders on a per load basis to exercising influence to monopolize the use of berthing spaces in the PCWAs;

- some of the triad related cases investigated by the police had revealed that they were not short-term, isolated incidents but had been in existence for over 10 years;

- as the police saw it, although the first-come-first-serve berth allocation system was originally intended to provide for the proper and equitable management control of PCWAs, it had been abused to such an extent that it had developed into a sub-letting culture which was a de facto monopoly backed by strong-arm tactics;

- the combination of the ability to monopolize, coupled with the very low berthing fees charged by the Government, sub-letting would bound to occur as a means of generating revenue for the unscrupulous;

- enforcement action by the police had encountered many difficulties because the barge operators, whilst still being able to make good money from their business, refrained from reporting against unfairness and extortion rackets, fearing that this might jeopardize their business operation. Moreover, as the cargo handling trade was a very small and closed community, it was very difficult for the police to send undercover agents to infiltrate into the community for investigation purpose; and

- the police were therefore in favour of a revision of the system and would give enforcement support to the MD to implement a fair and workable system.


6.75 Referring to the difficulties experienced by the police and that victims and witnesses were not forthcoming to assist in the police investigation, the Committee asked whether the police would consider exercising the powers of summons given to them under section 3 of the Organized and Serious Crimes Ordinance to crack down such criminal syndicates in PCWAs. The Director of Crime and Security of the RHKPF said that the police had been very careful in considering the use of such important powers. Nevertheless, he agreed that this would be an appropriate situation to invoke the power if the police had identified suitable people and cases.

6.76 Noting that the Administration had commissioned a consultancy on the PCWAs, the Committee invited the officials to brief them on the Government’s latest position on the recommendations of the consultants, particularly on the privatization proposal, the Secretary for Economic Services said that the Administration was still studying the consultants’ report and the intention was to go ahead with the privatization proposal as soon as practicable. At the request of the Committee, the Secretary provided two information papers respectively on 29 November 1995 and 2 January 1996 (Appendices 20 and 21) summarizing the consultants’ recommendations and the measures, both in the interim and in the long- term, to be taken to improve the management and control of PCWAs. In essence, the consultants’ recommendations could be classified into the following three categories -

- operational improvements - these included closing or relocating the unpopular PCWAs, improving the existing management and berth allocation system;


- financial improvements - these included increasing PCWA fees, changing the basis of pricing, taking into account the location, time and cargo type, and rationalizing land costs; and

- Institutional reforms - contracting out the management of sites and berths.

The Secretary further advised that whilst the Administration was still evaluating the consultants’ recommendations, the initial views were that most of the proposed measures would be difficult to implement due to environmental constraints and opposition to the fee increase proposal. The best way forward to resolve the current problems in the PCWAs would probably be the contracting out of its management. The Administration would however consider the closure or relocation of the unpopular PCWAs and other operational improvements where practicable. The Secretary for the Treasury added that pending the introduction of various other measures recommended by the consultants to improve the control of PCWAs, he would like to plead for the Committee’s consideration of the Director of Audit’s recommendations about the use of the fee mechanism to regulate the use of berthing spaces.

6.77 Responding to the barge operators’ complaint about the lack of consultation about the consultancy report and the privatization proposal, the Director of Marine said that -

- the Administration had only received the consultancy report at the end of October 1995, and some time had to be taken to consider the report and the recommendations therein;

- the Administration was about to embark on a three-month public consultation; and

- a copy of the consultants’ report would be made available to the barge operators for their information.

6.78 In response to the Committee’s request for more details about the contracting out proposal, the Director of Marine advised that -

- according to the consultants’ recommendation, the contracting out process would be implemented in three phases over a period of four to five years;

- the first phase would be the tendering out of berths largely on a restricted basis for a term of two years to enable the current operators to adjust to the


new system and to avoid monopolization by large companies. As there were altogether some 200 berths available but the number of current operators stood at 170 only, the initial plan was that 85%-90% of berths would be allocated by restricted tender and the remaining 15%-10% would be allocated by open tender;

- the second phase would be implemented two years after and the tender would be done on an open basis; and

- the third phase would be the tender of the whole operation of the PCWAs, including both the berths and the administration of the land sites.

6.79 The Committee questioned how the Administration could ensure that, by contracting out berthing spaces, there would be improvements in the management and control of PCWAs. The Director said that -

- the major cause of the present problems was the Government’s failure to use the fee mechanism to regulate the use of berthing spaces;

- the Administration believed that by leasing out berths for periods of two to three years through a fair and competitive bidding, this would not only satisfy the operators’ business requirement but resolve the monopolization problem currently in existence;

- legal owners of berths would no longer need to resort to other measures, legal or otherwise, to protect their holding of particular berths and they could also legally sub-let their berths during slack periods. Such legalized form of sub-letting could assist in putting a proper market control on the level of sub-letting charges; and

- the contracting out process would be implemented by phases and the Government would not withdraw immediately. During the first two phases, the existing staff and management system would remain in place and the only change would be the transfer of the duty of the collection of daily charges from Government to the contractors.


6.80 In reply to the Committee’s questions about interim measures to enable operators or new comers to the trade to be allocated a berthing space under the existing system, the Director said that -

- there were altogether 12 fast-working berths, representing 6% of the total berthing spaces, which were all located in the popular PCWAs and were available almost immediately if any barge operators came along;

- the MD controlled the allocation of fast-working berths very strictly so that rotation of barges by operators as in other cases could not occur;

- on top of these fast-working berths, there were also a number of empty berths in some unpopular PCWAs where new comers to the trade could made use of; and

- even with the introduction of the contracting out system, new comers should not be barred from joining the trade through participation in the open tender for berthing spaces.

6.81 Referring to the many problems about the PCWA berth allocation system, the Committee asked whether the Administration agreed with the Director of Audit’s comment made in paragraph 7.23 of his Report that the then Secretary for Economic Services had failed to give a full reply to a relevant question raised in the Legislative Council in November 1992. The Secretary for Economic Services said that -

- there were in fact two parts to that question;

- the first part was about the existing arrangement and the first-come-first-serve system was described as the concept for the existing arrangement; and

- in reply to the second part of the question, the then Secretary had made it very clear that the Administration was reviewing the whole system.


- are appalled that the Marine Department has lost control of the first-come-first-serve berth allocation system to the habitual operators and that the provision of fast-working berths at PCWAs has clearly demonstrated that the existing berth allocation system was a failure;


- express dismay that although the Marine Department had full knowledge that the berth allocation system had never worked, no attempt has been made to change the policy and no action taken to address the problem;

- express concern at the various irregular and unlawful activities currently in existence in the PCWAs including -

(a) monopolization of berths by habitual operators;

(b) extensive sub-letting; and

(c) extortion and triad activities;

- regret that, notwithstanding that the police investigations have suggested the long-standing criminal and triad activities in PCWAs, the Marine Department still refuses to recognize the prevalent problem;

- recommend that the Marine Department and its staff should, in the light of the evidence revealed in the police investigations, adopt a positive attitude and step up measures to effectively tackle criminal and triad problems in PCWAs;

- recommend that the Marine Department should encourage the barge operators to co-operate with the police with a view to eradicating triad infiltration into their activities;

- express concern that the PCWAs on the Hong Kong side are under-utilized and recommend that the Marine Department should explore alternative ways to improve their performance, including the possibility of opening the facility for the use by special trades;

- note that there are divergent views on the costing of the PCWA facilities and recommend that the costing and the method of calculations should be made more transparent;

- note that the Administration does not have sufficient knowledge of the cargo handling trade and recommend that better effort be made to understand it;


- urge the Administration to expedite its current review, in consultation with the barge operators, with a view to devising an open, fair and economically viable system for the allocation of berthing spaces in PCWAs. Moreover, the new system should be capable of -

(a) removing the irregular and unlawful activities currently in existence;

(b) improving the efficiency and utilization of the under-performed PCWAs; and

(c) preventing monopolization of the cargo handling trade; and

- wish to be kept informed of the outcome of the review.

SOCIAL WELFARE DEPARTMENT

Financial assistance for single-parent families under the Comprehensive Social Security Assistance Scheme

6.83 In the Director of Audit’s Report on the financial assistance provided by the Social Welfare Department (SWD) to single-parent families under the Comprehensive Social Security Assistance (CSSA) Scheme, the Director expressed his concern that the SWD might not have fully explored the use of the network of social services before providing financial assistance to these families. The Director suggested that if single parents were provided with the options of other social services, such as child care and after-school care service, they might prefer the provision of such support services to relying on CSSA in order that they could go out to work and earn their own living. The Director also considered that such arrangement was not only in line with the promotion of self-reliance as a basic principle underlying the provision of social welfare in Hong Kong, but might have a cost advantage over the payment of CSSA.

6.84 Referring to the calculations done by the Director of Audit as shown in paragraph 8.29 of his Report, the Committee asked whether the SWD agreed that considerable savings could be achieved if the Government encouraged single parents to find a job and be financially self-reliant by providing them with the necessary child care support. The Director of Social Welfare said that -

- whilst he had no disputes over the calculations done by the Director of Audit, in his view, there was a much more fundamental issue to be considered in the case of single-parent families other than the need to achieve savings by the Government;

- it should be noted that the vast majority of single parents were divorcees and many of them had just gone through a trauma before they came to the SWD for assistance;

- the foremost aim of the SWD was therefore to help the single parents and their children overcome their crisis and re-establish their lives; and

- forcing single parents to go for open employment and putting their children in child care centres was not necessarily the right answer for each individual single parent.

6.85 The Director of Audit clarified that it was never his intention to suggest that single parents should be compelled or forced to take up employment. He was however of the view that more information should be given to single parents so that they could make a


better choice of the kind of services relevant to their need. Moreover, he also felt that the family service centres, which specialized in the provision of various family and child care welfare services, should be in a better position to assess the need and requirements of single-parent families.

6.86 The Committee asked whether the SWD agreed with the Director of Audit’s comment in paragraph 8.6 of his Report that the provision of financial assistance in the form of CSSA to single-parent families might tend to create a dependency culture. In response, the Director of Social Welfare said that -

- according to a study by the SWD in December 1994, only 20% of single parents in Hong Kong lived on CSSA and the situation compared favourably with that happened in the United Kingdom where some 80% of single parents were on social security;

- the median length of time that a single parent lived on CSSA was 2.2 years and only 6% of all single parents in the study had been on CSSA for ten years. Comparing with a median length of three years for the average CSSA cases, the length of dependency on social security for single parents was shorter;

- the statistics well demonstrated that there did not exist a dependency culture amongst single-parent families in Hong Kong; and

- it could not be ascertained why single parents got out of the social security net so quickly. Presumably it was because they had got a job or remarried, but the situation was very commendable.

6.87 The Committee asked what policy was adopted by the SWD in the provision of assistance to single-parent families and how far the principle of promoting self-reliance amongst service recipients was relevant in this case. The Director said that -

- it was SWD’s general policy not to encourage dependency on social security and that people, whether or not they were single parents, were encouraged to work whenever they were able to do so; and

- whilst single parents were not encouraged to be dependent on social security, they should however be given the right of choice of the kind of services they considered most appropriate in meeting with their need.


6.88 On the question of the “right of choice”, the Committee observed that this policy objective did not seem to have appeared in any documentation or welfare policy papers of the Government. The Committee asked how and where this policy had been established, the Director said that -

- it was true that the “right of choice” principle was not documented in any social welfare policy papers but rather it was inherent in the values of life in Hong Kong;

- in the 1991 White Paper on “Social Welfare into the 1990s and Beyond”, the importance of the family unit being a vital component of society was clearly spelt out, and the parents’ choice to take care of their dependent children was considered of paramount importance; and

- in view of the many sociological problems faced by single-parent families, a situation that the SWD would not want to see was that the parents were required to work and earn a living whilst their children were left alone at home or left to the care of others at a time of family crisis.

6.89 The Committee pointed out that to enable single parents to exercise their right of choice, it would be necessary for the parents to be provided with sufficient information of the type of services available. The Committee asked whether the Administration agreed with the Director of Audit’s observation that there were inadequacies in this respect. The Director said that -

- he agreed with the Director of Audit’s observations that there was a gap in the services that the SWD offered to single parents;

- to improve the provision of information to single-parent families, the SWD had produced a brochure in September 1995 introducing various kind of services which were available to single parents. Also contained in the brochure was a list of government offices, including offices under the SWD and the Labour Department, to which single parents could approach for assistance;

- the brochure was distributed to the public through various SWD offices, including the social security field units and family service centres; and


- the SWD also worked hand in hand with other government departments, e.g. the Labour Department, in providing information to their clients about vocational training and retraining programmes.

6.90 Responding to the Committee’s enquiry on whether there were sufficient child care support services available to single-parent families, the Director said that -

- statistics had shown that at present only 3% of single parents on CSSA sent their children to day nurseries and day crèches;

- although there was still a shortfall of day nursery and day crèche places at the moment, priority for placements was always given to single-parent families because of their social need; and

- there was no evidence to suggest that there were any single parents waiting unduly long for child care placements.

6.91 According to a study by the Director of Audit into 25 single-parent CSSA cases, the relevant social security field units had neither introduced to their clients any alternative services nor referred them to the family services centres for family or child care assistance at the initial processing stage of their applications for CSSA. The Committee asked whether this reflected a problem of inadequate co-ordination amongst the different government offices and a lack of professionalism of the staff of the social security field units. The Director said that -

- in the Director of Audit’s Report, it was implied that the first point of contact of all the 25 cases was the social security field units but in fact this was not the case;

- an analysis by the SWD into the 25 cases revealed that only seven of them approached the social security field units first. Amongst the remaining 18 cases, the first point of contact was either a caseworker of a family service centre, a medical social worker or a non-Government organization social worker, who were all professional personnel; and

- the analysis demonstrated that the vast majority of the cases were complex and were actually brought to the attention of a trained social worker first, who then referred the cases to the social security field unit for financial assistance.


6.92 Quoting the practice in some Western countries whereby financial assistance cases were handled by professional social workers, the Committee asked whether there were merits of having trained personnel in the SWD’s social security field units to handle some complex cases, such as the cases of single-parent families. The Director said that -

- the major work of the social security field unit was to assess whether or not an individual or family was eligible for social security;

- it had to be pointed out that there were straightforward single-parent cases where they required only income support through the CSSA scheme and such cases could be handled by staff who did not have social work training;

- only when a person or family had complex social problems that such a case should be handled by a trained social worker;

- whilst the SWD acknowledged the need for co-ordination and was in fact taking steps to do so, there was not a case for the need of social workers in social security field units, particularly when there was still a shortfall of social workers in Hong Kong who were needed for other professional jobs;

- the SWD fully recognized the need for close working relationship between social security field units and family service centres and it was the Department’s policy to bring the two service units physically together, for the convenience of the clients who had to approach both offices for assistance; and

- at present, of the 33 social security field units and 42 family service centres, about one in three actually shared the same premises. They were all in close proximity to members of the general public.



- express the view that the promotion of self-reliance is the basic principle underlying the provision of social welfare in Hong Kong, and the Government should make every effort to encourage and facilitate all members of society, including single-parent families, to achieve self-reliance;

- note the Director of Social Welfare’s advice that, as a matter of principle, single parents should be given the right of choice of the kind of welfare services relevant to their need, and recommend that the principle of right of choice should be properly documented as a social welfare policy with the endorsement of the Social Welfare Advisory Committee;

- recommend that the Government should make every effort to promote the use of child care services by single parents relying on Comprehensive Social Security Assistance and that in order to enable single parents to work and earn their own living, child care support should be readily made available to them;

- note that social services are presently available to single-parent families through a network of service units run by various government departments and non-governmental organizations, and express the view that co-ordination among the different service units is very important in order to ensure that the network of services meets the special needs of these families and that the services are provided to them in the most cost-effective manner;

- express concern that the Director of Audit’s examination of single-parent Comprehensive Social Security Assistance cases has revealed that the social security field units, as a matter of routine procedure, do not provide sufficient information or offer alternative social welfare services to the single parents at the initial processing stage of their applications for Comprehensive Social Security Assistance;

- are pleased to note that the Director of Social Welfare is taking steps to ensure that the social security field unit staff will inform and assist in referring single-parent Comprehensive Social Security Assistance cases to appropriate service units for assistance whenever necessary; and

- recommend that there should be well trained staff at the social security field units to handle single-parent family cases with complex social problems and


consider that trained staff are more competent in providing single parents with appropriate assistance, including referrals for other social services.

7. CAPITAL WORKS RESERVE FUND

PLANNING, ENVIRONMENT AND LANDS BRANCH

Chemical Waste Treatment Centre

7.1 In his Report concerning the Chemical Waste Treatment Centre (CWTC), the Director of Audit highlighted three major issues, namely -

- the lack of a re-submission to the Executive Council (ExCo) before the award of the concession contract for the CWTC, notwithstanding the significant increases in both the capital and operating costs of the facility;

- the slow progress of setting up the charging schemes; and

- the implementation of the “polluter pays” principle.

7.2 The Committee noted that when the Administration submitted the CWTC proposal to the ExCo in 1989, the capital cost of the project was estimated to be $300 million and the annual operating cost, including the waste collection service, would be about $38 million. However, when the project was later submitted to the Finance Committee (FC) of the Legislative Council for funding approval in November 1990, the project estimates, in terms of capital cost, had increased to $1,300 million at money of the day prices (equivalent to $731 million at 1990 prices), and the annual operating cost was estimated to be about $196 million at its first year of operation in 1993-94. For the purpose of considering the various issues raised in the Director of Audit’s Report on this subject, the Committee held two public hearings respectively on 25 November and 9 December 1995 to hear the explanations from the public officers concerned.

7.3 Noting that there had been significant increases in both the capital and recurrent costs in the CWTC project but yet a decision was taken not to make a re-submission to the ExCo, the Committee asked whether the Administration considered cost an important factor when making or implementing policy decisions such as the project in question. The Secretary for Planning, Environment and Lands said that -

- each case had to be considered individually on its own merits;

- in this particular case, the ExCo’s decision was an approval in principle that chemical waste should be controlled and, in connection with that, there should be a charging scheme;


- the major consideration at that time was the serious chemical waste problem confronting Hong Kong and it was considered necessary to construct the CWTC to overcome the problem;

- the ExCo had not made full cost recovery a condition for the construction of the project although the long-term aim of the Administration was to recover the cost of the operation; and

- in retrospect, he agreed that a re-submission should have been made to the ExCo and this would be done for similar cases in future.

In response to a further enquiry by the Committee at the second public hearing on whether a re-submission to the ExCo was seen to be a cause of delay to the construction process, the Deputy Secretary for Planning, Environment and Lands replied in the negative. He said that the re-submission was considered not necessary because of the policy approval given and, coupled with the urgent need for the waste treatment facility for the territory, it was decided that the issue of cost increase would be put to the FC.

7.4 On the Committee’s enquiry as to whether there were general guidelines or criteria requiring policy branches and departments to report back when there were significant changes to the original proposals endorsed by the ExCo, the Deputy Secretary for the Treasury (2) replied in the negative. He explained that -

- whether or not a re-submission was necessary had always been a pragmatic decision, very much dependent on the original advice given by the ExCo; and

- as far as the CWTC project was concerned, the Secretary for the Treasury had indeed formed a view that the cost escalation warranted a return to the ExCo, but the Secretary for Planning, Environment and Lands took a different view which at the end prevailed.

7.5 At the request of the Committee, the Secretary for Planning, Environment and Lands provided a breakdown of the increases in the capital and operating costs of the CWTC in writing on 6 December 1995 (Appendix 22). At the subsequent public hearing, the Committee sought further clarifications from the public officers concerning details of the cost escalation.


7.6 On the Committee’s query as to why a reduction in the size of the site had resulted in an increase in cost of $100 million, the Deputy Secretary for Planning, Environment and Lands said that -

- the size of the site was originally envisaged to be 3.7 hectares but the site subsequently provided was 2.7 hectares only;

- because of the smaller size of the site, part of the CWTC premises, such as the technical and waste storage buildings, the administration building, etc, had to be developed as multi-storey buildings; and

- there were also other associated changes, for example to the civil, drainage and utility works as well as safety measures.

7.7 Commenting on the general understanding that the cost of construction of multi-storey buildings was usually lower than that of low-rise developments, the Committee asked whether there were any specific reasons why the same did not seem to have applied to the CWTC facilities. The Deputy Director of Environmental Protection said that according to his understanding, a number of additional features had been added as a result of the changes but he was unable to tell precisely how these had attributed to the additional cost of $100 million. He added that the breakdown of the cost increases between the original and revised estimates was not specifically contained in the tenderer’s submission but rather were estimates made by the project consultants who tried to explain the reasons for the cost variance.

7.8 On the Committee’s observations that the Administration should have anticipated the need to include the cost of waste collection vehicles in the original estimates as well as the need to have smaller waste containers bearing in mind that most factories in Hong Kong were of small and medium sizes only, the Deputy Secretary for Planning, Environment and Lands accepted that these were fair observations but he pointed out that the additional costs so incurred, i.e. $37 million for waste collection vehicles and $148 million due to changes from 200-litre drums to 20-litre packaged waste containers, were legitimate. On the issue of waste collection vehicles, the Deputy Director of Environmental Protection supplemented that it had been the view of the Administration during the initial planning stage that the waste producer should be responsible for delivering their waste to the CWTC but there was a subsequent policy change which suggested that the collection service should be provided by the Government so as not to discourage waste producers from using the facility and simply dumping their waste down the drains.


7.9 On the cost increase of $100 million attributed to the more stringent operational standards required in line with international developments, the Deputy Secretary for Planning, Environment and Lands said that more stringent operational standards and additional controls were necessary having regard to the topographical and dense population in Hong Kong.

7.10 With respect to the financing charge of $311 million due to amortization, the Deputy Secretary for the Treasury (2), in a subsequent letter to the Committee on 12 December 1995 (Appendix 23) explained that the financing charge had not been included in the original calculation of the capital cost. It represented the difference between the $1,285 million (money of the day prices) and the contract sum of $974 million (in 1992 prices).

7.11 Concerning the additional cost of $43 million under the miscellaneous items, the Deputy Secretary for Planning, Environment and Lands said that this included insurance, computer systems, provision of emergency response service, etc. He accepted that the original estimates had not been very accurate.

7.12 In view of the substantial cost escalation in various aspects of work relating to the construction of the CWTC project, the Committee asked how the Administration determined whether the increases were reasonable and justifiable, and finally reached a conclusion that the facility had been built at a reasonable price. The Deputy Director of Environmental Protection said that -

- the breakdowns of the cost increases were not actual accounting figures but were merely the consultants’ best guesses as to why the cost escalation had occurred;

- whilst he had no intention to suggest that the original capital cost estimate of $300 million made in 1987 was immaterial to the decision made at the time to go ahead with the project, he wished to point out that the figure of $300 million was only an internal Government guesstimate based on the consultants’ best endeavours and input from the industry at the time;

- the cost estimate put forward to the authorities concerned, both within the Government and the FC, for formal funding approval was the revised figure of $1.3 billion; and


- the sum of $1.3 billion, which came in the tender price, had been broken down for the provision of a number of capital works and services. This had been assessed to be fair and accurate.

7.13 The Secretary for Planning, Environment and Lands, in his letter dated 29 November 1995 to the Committee (Appendix 24) explained that the CWTC was the first chemical waste treatment facility of its kind developed in Hong Kong. Without the benefit of past experience, it was inevitable that there was an element of “guesstimate” in the planning, and as the planning proceeded, some assumptions had to be revised and these had implications for the capital and operating costs. At the subsequent public hearing, the Deputy Secretary for Planning, Environment and Lands added that -

- the difficulty with the CWTC project was that it was the first one built in Hong Kong and there was no similar projects on which the Government could base to make accurate cost comparison;

- nonetheless, the cost of the project had been analyzed rigorously at various stages, by the consultants, the relevant departments and policy branches, the Central Tender Board and finally the FC of the Legislative Council, and the conclusion was that the cost of the project was justifiable; and

- it should be noted that the indirect social costs of not having the waste treatment facility, in terms of the tremendous pollution impact on the environment, could be enormous.

The Deputy Secretary for the Treasury (2) also confirmed that the project had gone through at least two levels of consideration within the Government, firstly by the Star Chamber which was chaired by the Chief Secretary with input from all relevant policy branches, and secondly by the Central Tender Board chaired by the Secretary for the Treasury. The decisions were that the project deserved priority and the sum of money worth spending.


7.14 Observing that there had been a drop in the general tender prices by some 10% in 1990-92, the Committee asked whether this had had any impact on the CWTC project. The Deputy Director of Environmental Protection said that the project was a specific engineering project which was subject to an inflation rate different from the general construction price index.

7.15 Noting that the charging schemes for land-based wastes and wastes from ships were not implemented until 1995, some two years after the CWTC had commenced operation, the Committee invited the public officers to explain the reasons for the delay. The Deputy Secretary for the Treasury (2) expressed the view that it would be desirable if the charging schemes could be worked out before the commissioning of the project, otherwise the incentive of the parties concerned to reach agreement on the charging schemes would considerably diminish. The Secretary for Planning, Environment and Lands said that whilst he recognized the merits of parallel action, it was not something that was always achievable in real life situation. He said that -

- in order to devise an effective and enforceable charging scheme, it was necessary to develop a comprehensive database of all waste producers;

- in addition, it was necessary to have the supporting legislation and the enforcement staff in place; and

- all the above action had taken considerable time to complete.

The Deputy Director of Environmental Protection supplemented that -

- as this was the first scheme of its kind in Hong Kong, the Administration had suffered from the lack of hands-on experience;

- there were very few other places with similar experience from which Hong Kong could borrow. The only one known to the Administration was in Alberta, Canada, which was understood to have taken some five years to develop a proper charging scheme;

- the consultants engaged to advise the Government on the project had also suffered from the same problem. Moreover, they had only recommended a broad scheme for charging which had to be translated into practical details;

- the CWTC itself was a very complex engineering development and quite a number of technical problems arose during the course of implementation which could not have been foreseen;


- some time had been taken to negotiate with the contractor over the details in the operation of the collection service and until these had been sorted out, it would be unrealistic to start imposing charges; and

- it should be noted that the prime objective of the CWTC project was to deal with the pollution problem caused by the dumping of chemical wastes and it was the secondary aim to pursue the polluter pays principle and to recover some of the costs of operating the waste treatment facility.

7.16 On the development of the charging scheme for marine wastes, the Director of Marine said that the Department had researched into some overseas practices but found that other overseas ports operated on a very different basis. The present level of fees charged for wastes from ships was set to recover 20% of the variable operation cost of the CWTC.

7.17 Referring to paragraph 10.42 of the Director of Audit’s Report which revealed that the Administration had taken considerable time to come to a decision as to which government department should be responsible for implementing the marine wastes charging scheme, the Secretary for Planning, Environment and Lands accepted that there had been some confusion and departmental delays in this respect. The Secretary added that, with hindsight, he would have preferred the arrangement to be put in place much earlier and he regretted that lower priority had been given to the handling of marine wastes because the Administration was then preoccupied with the land-based wastes issue.

7.18 At the second public hearing, the Deputy Secretary for Planning, Environment and Lands advised the Committee that in developing similar facilities in future, the Administration would try to ensure that the relevant charging schemes should come on line at the same time as the facilities commenced operation. This was being pursued with the introduction of a charge to meet the cost of the facility dealing with medical wastes. It should however be recognized that there were huge difficulties and a great deal of time was required in reaching a final agreement on any charging schemes.

7.19 Noting that several consultants had been engaged to advise on the CWTC project as well as the relevant charging schemes but many of the recommendations put forward by the consultants were found unenforceable and subsequently not followed, the Committee queried whether the consultants had been given clear briefs for their jobs and whether there


had been a waste of money on these consultancies. The Deputy Director of Environmental Protection replied in the negative. He said that -

- the Environmental Protection Department had given very specific instructions through the brief to the consultants;

- the consultants engaged had come forward with various sensible suggestions, but unfortunately these had to be set aside for a number of reasons; and

- it had all along been the view of both the Administration and the consultants that an indirect charging scheme was preferred to a direct charging scheme because the latter might create a disincentive for waste producers to use the CWTC.

7.20 The Secretary for Planning, Environment and Lands said that the Administration was not obliged to accept every recommendation submitted by the consultants. Whilst the consultants put forward their professional advice, the ultimate decision and implementation should rest with the Administration. In his letter to the Committee subsequent to the public hearing, the Secretary further clarified that most of the recommendations of the various consultancy studies in connection with the development of the CWTC were actually followed by the Government. The only exception was the recommendation to recover the costs of the CWTC through a wholesale levy on chemicals. The indirect charging scheme was favoured initially because, apart from the reasons given by the Deputy Director of Environmental Protection, it involved relatively simple administrative procedures and the aim of full cost recovery could be achieved without imposing a heavy burden on the industry.

7.21 On the Committee’s question as to how the consultants commissioned to develop the waste treatment facility were paid and whether the fees were in any way linked to the actual tender price of the CWTC, the Deputy Director of Environmental Protection said that -

- the consultants’ fees were paid in the form of lump sum fees which were negotiated on the basis of the work performed and had no direct relationship with the actual tender price of the project; and

- the fees were paid in three phases and the first two were actually paid before the tender came in. The third phase happened to be negotiated after the tender price was known but it had not been negotiated in relation to the tender price.


7.22 On an invitation of the Committee to elaborate on the Administration’s interpretation of the polluter pays principle and how it was applied to chemical waste treatment, the Deputy Secretary for Planning, Environment and Lands said that -

- the polluter pays principle, as enshrined in the Rio Declaration, proclaimed the internalization of environmental costs as an important feature in advancing environmental controls;

- the application of this principle was an extremely difficult and contentious issue which had generated considerable debate both in the Legislative Council and the community;

- the technical meaning of the principle was that a waste producer should be required to pay the full cost relating to the disposal of the waste;

- in practice, most administrations around the world had been applying the principle in a pragmatic manner, having regard to their local circumstances;

- in applying the polluter pays principle, the Hong Kong Government took into account all relevant factors, including recovery of costs, both capital or recurrent; affordability; acceptability of the community as well as the views of the Legislative Council;

- as far as the CWTC was concerned, the principle was applied by and large to the effect that the Government would meet the capital costs of the waste treatment facility whilst users would contribute to its recurrent costs;

- the policy on cost recovery of the CWTC was at present set at 20% of the variable operating cost; and

- the pragmatic approach was necessary because if the Government pursued with 100% full cost recovery, this would ruin the competitiveness of the industries concerned.

7.23 In reply to the Committee’s enquiry as to whether the CWTC was operating at its designed capacity, the Deputy Secretary for Planning, Environment and Lands said that the usage during the initial years since commissioning had been heavier than expected. It was anticipated that the facility would take several years before it would operate at its full capacity.



- do not accept the Secretary for Planning, Environment and Lands’ explanation that the construction and costs of the Chemical Waste Treatment Centre were two separate issues;

- express concern at the Administration’s explanation that the original capital cost estimate of $300 million for the project was only an internal government guesstimate bearing in mind that this figure was included in the formal submission to the ExCo for endorsement;

- consider that costs should always be an important consideration in the process of formulating policies and making policy decisions;

- express concern at the substantial increases in both the capital and recurrent costs of this waste treatment facility as well as the subsequent policy change in the mode of waste delivery, and consider that in the light of the cost escalation and policy change, a re-submission to the ExCo should have been made;

- express concern at the lack of adequate planning and monitoring of the project by the Environmental Protection Department, coupled with the apparent inexperience of the consultants in putting forward recommendations suitable to the local environment, as a result of which there has been a substantial cost escalation in this project;


- note the Secretary for Planning, Environment and Lands’ undertaking that , in future, a re-submission to the ExCo would be made before the implementation of a project or the award of a contract if the cost has increased significantly, so that the ExCo can reconsider the justifications for the project in the light of the increased cost and any possible effects on the achievement of the Government’s objectives, such as full cost recovery;

- consider it important that the costs of this kind of facilities should be strictly controlled as they would have direct impact on the level of charges levied on the users;

- note that although the Chemical Waste Treatment Centre had commenced operation in February 1993, the charging schemes for land-based wastes and wastes from ships were not implemented until March 1995 and August 1995 respectively;

- regret that, despite the need for urgent action, the Administration took some 17 months to reach a decision on which department should be responsible for administering the charging scheme for wastes from ships;

- recommend that, in the implementation of similar schemes in future and when different policy branches and departments are involved, they should define their responsibilities at an early stage so that prompt action can be taken to implement the schemes;

- endorse the Secretary for Planning, Environment and Lands’ advice that the Administration will apply the cost recovery and polluter pays principles in a pragmatic manner, taking into account other factors including affordability and acceptability of the community at large;

- recommend that the Administration should spell out the extent of cost recovery when seeking policy and funding approvals for a project, so that the approving authorities will have a clear idea of what the pragmatic application of the polluter pays principle really means in respect of the project concerned; and

- note that, as far as the Chemical Waste Treatment Centre is concerned, the Government will meet the capital costs of the project whilst users will contribute to its recurrent costs and wish to be kept informed of the Administration’s progress in recovering the full recurrent costs.

ARCHITECTURAL SERVICES DEPARTMENT

Contractual disputes over the construction of the Pamela Youde Nethersole Eastern Hospital

7.25 The Committee noted from the Director of Audit’s Report that the contractual disputes over the construction of the Pamela Youde Nethersole Eastern Hospital between the contractor and the Government had given rise to contractual claims. The disputes were related to the following three aspects of the construction works -

- the issuance of some 3,000 variation drawings under Variation Order No. 1 after the award of the contract in August 1988;

- the addition of the acoustic floating floor in the plant room on the roof of the Main Block at the very late stage of the project; and

- the insufficient space allowed for the installation of building services such as fire services installation, electrical installation, medical gases installation and heating, ventilation and air-conditioning installation.

The Director of Audit observed that there was scope for improvement in the conditions of contract and in contract management.

7.26 Referring to some 3,000 variation drawings issued after the award of the contract, the Committee asked why so many variation drawings had to be issued and whether the issuance of variation drawings was adopted in other Government works projects. The Acting Director of Architectural Services explained that -

- comparing to the total number of 34,519 drawings in the contract, the number of some 3,000 variation drawings was actually not on the high side;

- 3,000 variation drawings did not mean 3,000 items of changes;

- the substantial number of revisions were all minor co-ordination revisions and responses to queries from contractors, and frequently a minor architectural or building services change required resultant alterations in up to eight or more drawings; and

- the decision to freeze tender drawings in May 1987 in preparation for the tendering was made on the premise of expediting the commencement of the project, and subsequent need to revise the drawings could hardly be avoided.


The Chief Architect added that -

- it was quite normal for large hospital projects to issue variation drawings at the commencement of construction works because of the long intermittent time between tendering and the actual award of the contract;

- variation drawings were also issued having regard to the need to keep pace with the rapidly developing modern technology, clarifications from the contractors, and changes in requirements of the client; and

- it was not uncommon that one minor change, such as the change of one fire service sprinkler point, would affect a whole series of drawings.

7.27 At the request of the Committee, the Acting Director of Architectural Services submitted additional information after the public hearing relating to Variation Order No.1, which included -

- a brief explanation on the project together with the detailed information of the drawings and nature of revisions under Variation Order No. 1 (Appendix 25), showing that all items covered in the Variation Order were of minor nature and involved changes arising from dimension co-ordination, selection of colours, responses to clarifications from the contractor, etc.; and

- a table showing the measured cost of Variation Order No.1 at $25.16 million,

which represented only 1.89% of the original contract value of $1,333 million (Appendix 26).

7.28 In response to the Committee’s further enquiry about the extent of variations in respect of the Pamela Youde Nethersole Eastern Hospital as compared to other government hospital projects, the Acting Director, in his written submission to the Committee subsequent to the public hearing vide Appendix 27, explained that only a broad comparison could be made at best, having regard to the fact that each hospital and contract had its own particular features. The Acting Director also indicated that the extent of variations amongst various hospital projects did not reflect vast differences as evidenced by the statistics provided in the appendix.

7.29 The Committee noticed that the no-claim condition regarding Variation Order No. 1 was not fully met because the drawings inspected by the contractor were not representative of the final changes. The Committee asked whether the Architectural


Services Department (ASD) would in future consider completing project design and contract documents before inviting tenders and, in the event that changes had to be made after the invitation of tenders, whether the tender period should be extended so that the changes could be incorporated as tender addenda before the close of tenders. In response, the Acting Director said that -

- it was the ASD’s normal procedure to complete the design and contract documents before inviting tender;

- whenever possible, the tender period would be extended so as to incorporate changes into the tender documents by means of tender addenda; and

- in the case of large-scale and complex hospital projects such as this particular case which required exceptionally lengthy period from planning to tendering, it would not be pragmatic to insist on adopting the normal tender procedure.


- the ASD had extended twice the tender closing date, from 29 January 1988 to March 1988, and then to 15 April 1988 because of the lengthy discussions with the building services contractors on the domestic subcontract agreement;

- according to the advice given by the consulting quantity surveyors, any further issue of tender addenda might result in the tenderers not being able to meet the extended tender date;

- to further extend the tender closing date would not be practical because prices given by the main contractors from the subcontractors were only valid for a limited period of time;

- as such, a re-tendering exercise of this nature would have been quite extensive and expensive having regard to the fact that the contractors had already invested a lot of time and effort into the tendering exercise and the inflation at that time was on the rise; and

- it was considered more appropriate to proceed with the tender and get on with the project without further delay.

7.30 The Committee noted from paragraphs 11.14 and 11.15 of the Director of Audit’s Report that the late addition of an acoustic floating floor in the plant room of the Main Block had caused serious disruptions because the structural works of the building had been


completed and a great deal of ductworks had been installed. The late addition of the floating floor was due to the adoption of the open specification method of tendering. The Committee questioned the reasons for using the open specification method of tendering and queried whether this method of tendering had been adopted for other government projects. In response, the Acting Director of Architectural Services said that -

- the adoption of the open specification tendering approach for the procurement of goods and equipment was not unique to hospital projects but rather commonly applied in government projects; and

- it was the usual practice that when inviting tenders, no requirements or references should be made to a particular trade mark or name, patent, design or type, specific origin, and producer or service provider, unless there was no sufficiently precise way of describing the procurement requirements. In other words, tenderers were invited to submit a schedule of goods and equipment on the basis of the performance specifications set out in the tender document.

7.31 In response to the Committee’s enquiry about the extent of the application of the open specification tendering approach for the procurement of medical equipment, the Acting Director said that -

- the open specification method was generally adopted in the procurement of medical equipment; and

- deviations from this approach usually arose from the procurement of very specialised type of medical equipment which required specific brand and design, and from the need in meeting requests from the medical personnel for the most up-to-date equipment.

7.32 Referring to paragraph 11.22 of the Director of Audit’s Report concerning the difficulties in getting the contractor to comply with the contractual obligations of submitting the required services installation drawings which had contributed to the problems of insufficient space to accommodate the services during the course of the works, the Committee asked what the difficulties were. In response, the Acting Director said that -

- all along, the responsibility of co-ordinating service installation was placed on the contractor who unfortunately did not have any incentive to produce the required drawings;


- although the contractor was required to assign a responsible person to oversee this aspect of works, most often that person was not of the right calibre and qualification for the job; and

- to rectify this unsatisfactory situation, improvement had been made to the contract conditions by adding a new clause stipulating that the contractor must hire a consulting engineer with at least five years’ experience in building services.

7.33 Whilst noting that the appointment of a well qualified consulting engineer would help improve the situation, the Committee were concerned whether this would lead to an increase in tender cost. In response, the Acting Director said that it was difficult to predict whether this would contribute to higher tender price as in the past it was assumed that the contractor had included such staff cost in his tender.

7.34 The Committee queried how far the ASD involved its client, in this particular case, the medical personnel, in the planning and design of the hospital project. The Acting Director said that -

- the involvement of the medical personnel in the planning and design of the hospital project was largely confined to the procurement of medical equipment;

- given that a typical hospital project required eight to nine years to plan, it was inevitable that the client would make requests for the procurement of the latest medical equipment to replace those outdated equipment contained in the original bills of quantities. Moreover, as the construction of a hospital usually took some four years to complete, it was not unusual that a lot of further requests for equipment changes were made at the very late stage of the project;

- it was the duty of the ASD, acting as the project agent, to accommodate the client’s requests as far as practicable; and

- as a result of accommodating client’s requests for the latest medical equipment, a lot of drawings were required to be revised. In fact, a portion of the some 3,000 revised drawings contained under Variation Order No. 1 originated from such equipment changes.



- during the planning stage, a series of meetings were held with the Hospital Services Department to draw up a schedule of medical equipment and to determine the location and timing of their installations. Many of these specifications were subsequently written into the contract; and

- despite all this planning, changes to the procurement and installation of medical equipment still occurred.

7.35 Whilst recognising the need for the ASD to accommodate the client’s needs and provide a building which best meet the requirements, the Committee asked whether due regard had been given to cost implications when considering the client’s requests for equipment changes. In response, the Acting Director of Architectural Services said that -

- it was true that in order to accommodate the installation of new equipment, some corresponding changes to the project design would need to be made;

- some of these changes incurred little or no costs, although it was possible that in aggregate they could amount to a substantial sum;

- at the time of awarding the contract, there was no arrangement made with the contractor concerning payment for the additional works to be carried out, thus giving rising to contractual disputes over claims for extension of time and financial loss later on;

- similar problems should not recur as a new condition had now been put in the contract stipulating that the contractor, after viewing the variations, was required to inform the ASD within 28 days of the time and cost implications; and

- the ASD was not bound to accept any proposal submitted by the contractor as payments for additional works would normally be calculated according to a payment schedule contained in the contract. Should there be any disagreement, arbitration would be sought.

7.36 Noting that continuous updating was usually made to the design and procurement requirements of a hospital project due to the very long time lag between planning, tendering, and construction, the Committee asked whether there were merits for the ASD to seek funding from the Finance Committee (FC) of the Legislative Council by phases, i.e. in


the initial phases, only funding for the construction cost would be sought, whereas funding for plant and equipment would be sought at a later stage of the project, in order that a more realistic funding proposal could be presented for the FC’s consideration. In response, the Acting Director said that -

- in his view, the FC should be supplied with the overall cost estimates when approving funding so that it could have a global picture of the total cost of a project albeit there would be additions and deletions to the schedule of equipment during the course of construction; and

- to seek funding by phases would undermine effective cost monitoring and control.

7.37 On the Committee’s enquiry as to which departments assumed ultimate responsibility for budget and cost control of this hospital project, the Acting Director said that -

- the Director of Architectural Services was the vote controller of the project and he had the duty to keep the costs within the approved project estimates; and

- as to the kind of equipment to be purchased, it was a matter for the client, i.e. the Hospital Authority, to decide.


The Chief Architect added that the Project Building Working Group, which included representatives of the ASD, the project consultants and the then Medical and Health Department, and the project team also helped to keep very strict cost control over the project.

7.38 On the issue of cost control, the Committee further queried whether the Government would make reference to overseas practices. The Acting Director of Architectural Services said that the ASD maintained close liaison with numerous overseas institutions and professional bodies in order to keep abreast of the new development in project management outside Hong Kong.

The Deputy Secretary for the Treasury (3) added that staff from the UK Treasury had come to look at the Hong Kong Government’s cost control system and concluded that our system was very similar to theirs.

7.39 In reply to the Committee’s enquiry about the Government’s cost control system, the Deputy Secretary said that -

- arising from concern about underspending on capital works programme a few years ago, a system of control had been introduced to improve the Government’s spending performance, including the introduction of project feasibility studies;

- in practice, before a funding application was submitted to the FC via its Public Works Subcommittee, the client department would be required to specify precisely what were required of the proposed project and the works departments would then carry out a preliminary feasibility study to ensure that they could deliver what the client wanted at a reasonable cost. At the completion of the preliminary feasibility study, the client would need to justify to the Star Chamber that the proposed project was good value for money;

- in addition, the costs of all new projects had now to be calculated in money-of-the-day prices over the life of the project. This would in effect put a budget cap on the project and, under normal circumstances, it should not be necessary to seek additional funding from the FC. If the cost should eventually exceed the cap, the standard procedure would be followed by a resubmission to the FC with justifications for additional funding before incurring the additional expenditure;


- a Capital Works Committee, chaired by the Secretary for Works and comprised, amongst others, the Secretary for Planning, Environment and Lands, the Secretary for the Treasury and the Secretary for Housing, had also been set up to monitor the progress of capital projects and to recommend remedial measures to rectify problems so occurred;

- the cost control system had been greatly improved and strengthened since the time of the planning and construction of this hospital project; and

- the onus of monitoring spending mainly lay with the relevant policy branches and works departments. Notwithstanding this, the Finance Branch would keep a close eye on project costs through various channels, for example the resource allocation exercise.

7.40 In reply to the Committee’s enquiry as to whether there was any overspending in this hospital project having regard to the extent of variations and consequential contractual disputes, the Acting Director of Architectural Services said that the project had been completed within the budget and the claims with the contractor had been settled.

7.41 Noting that claims had been settled with the contractor and yet there was no overspending, the Committee questioned whether the cost estimates had been inflated in the first place. The Acting Director replied in the negative and explained that -

- the budget had been prepared by professional staff based on their knowledge of what the project should entail and what the costs should be;

- the variations involved very minor changes and did not incur high additional cost; and

- a contingency sum had been built into the approved project estimates to cater for unexpected items, such as requests for new equipment and minor variations, etc.


7.42 Subsequent to the public hearing, the Acting Director provided the Committee vide Appendix 28 a table showing a comparison between the cost estimates approved by the Finance Committee for the construction of the Pamela Youde Nethersole Eastern Hospital and the final account of the expenditure so spent.

7.43 In respect of settlement of claims with the contractor, the Committee noted that the financial settlement was covered by a confidentiality clause in a supplemental agreement whereby both the Government and the contractor were obliged not to disclose information about the agreement to any third party, except for disclosure required in connection with any audit or other due process of the Government. The Committee asked whether the ASD would consider lifting the confidentiality clause since the claims had been settled and that the public should have the right to know how taxpayers’ money was spent. The Committee also asked whether there was a time limit for keeping the agreement confidential. In response, the Acting Director said that -

- the supplemental agreement was not part of the original contract but was subsequently negotiated arising from the disputes;

- in view of the fact there were negotiations going on between the contractor and the subcontractors over the financial settlement, agreement would need to be sought from the contractor about the desirability of disclosing the information contained in the agreement at this stage;

- there was no time limit on the confidentiality clause stipulated in the agreement; and

.- nevertheless, he agreed in principle that for the sake of public accountability,

the information about the supplemental agreement should be disclosed to the public.

7.44 In his subsequent written submission to the Committee, the Acting Director replied that information about the supplemental agreement could not be disclosed pending agreement between the contractor and the subcontractors over financial settlement.



- express concern that some 3,000 variation drawings were issued under Variation Order No. 1, and that the condition that there would be no claims, subject to viewing the variation drawings, was not met because the drawings inspected by the contractor were not representative of the final changes;

- express concern that the slack internal control over the issuance of variation orders in this project had rendered the ultimate control of the cost of the whole project uncertain;

- note the Acting Director of Architectural Services’ comment that, due to clarification or changes in requirement by the parties concerned and advancement in technology, the design of a project can never be totally complete before tender invitation and recommend that, barring unforeseen circumstances, realistic cut-off dates for making clarifications or changes in requirement should be set and strictly observed by all parties concerned;

- express reservations about the Acting Director of Architectural Services’ comment that there are occasions when programme constraints must override the resultant delay in producing tender addenda and opine that the time saved by not issuing tender addenda may turn out to be false economy because of the subsequent delay caused by variations which inevitably will have to be issued, and consider that better planning to ensure completion of project design and contract documents before invitation of tenders should be adopted where practicable;

- recommend that, where changes have to be made after the award of a contract, the possible effects of these changes on extension of time and costs should be critically assessed and agreed with the contractor before the issue of variation orders;

- express concern at the scope of acoustic works requested at a late stage and at the difficulty in predicting acoustic needs due to the open specification method of tendering;

- express concern that, before ordering the acoustic works, the possible effects on the completion of the contract and costs had not been agreed with the contractor, and recommend that possible effects of changes on extension of time and costs should be agreed with the contractor before the issue of variation orders;


- express concern that the Government had difficulties in enforcing compliance with contractual obligations in the submission of the required drawings by the contractor;

- consider that, notwithstanding the improvement made to the contract conditions to ensure that the contractor performs the co-ordination role, including the production of the required drawings, the Government still has the obligation to assume the overall co-ordination of works projects and recommend that more design resources should be put in for this purpose; and

- consider it against the principle of public accountability that the supplemental agreement should have contained the confidentiality clause and recommend that, should it be deemed necessary to have such a confidentiality clause in future, a reasonable time limit of keeping the information confidential should be set out in the agreement.

HIGHWAYS DEPARTMENT

Construction of an access road from Ngong Ping Road to Sha Lo Wan in North Lantau

7.46 The Committee were concerned with two major issues raised by the Director of Audit in his Report regarding the construction of a vehicular access road from Ngong Ping Road to Sha Lo Wan in North Lantau. They were: (1) the planning of the road project was unsatisfactory because the population figure was overestimated and the cost of the project was underestimated; and (2) in its initial decision to implement the project by breaking up the estimated cost of $1.8 million into seven contracts, the then City and New Territories Administration (CNTA) had breached the approved rules for the use of Local Public Works (LPW) Funds which stipulated that minor public works projects in the New Territories exceeding $300,000 could not be charged to the Funds.

7.47 The Committee questioned whether the Administration, with the benefit of hindsight, agreed that good value for money had not been obtained as the project had apparently failed to achieve its original intention of providing a vehicular access road linking the remote villages of North Lantau, particularly those in Sha Lo Wan and Sham Shek Tsuen, to the bus network connecting Tai O and Ngong Ping Road to Mui Wo, notwithstanding the fact that a substantial capital expenditure of $11 million had been incurred thus far for both Stages I and II of the project and about $0.2 million annual recurrent expenditure was required to maintain the road. In response, the Director of Home Affairs said that the road project had its merits. She explained that -

- although the existing access road only reached Sham Wat, residents of Sha Lo Wan and nearby villages could also benefit from Stage I of the project albeit indirectly;

- had the road not been constructed, villagers of Sha Lo Wan would have to walk from Sha Lo Wan to Ngong Ping Road before they could gain access to the bus network. With the road extended to Sham Wat, their journeys to Ngong Ping Road had been shortened from one hour ten minutes to forty minutes; and

- holiday-makers visiting North Lantau could also benefit from the improved road system.

7.48 Referring to paragraphs 12.14 and 12.19 of the Director of Audit’s Report which revealed that according to the Hong Kong 1986 By-Census Report, North Lantau villages had only a population of 91 whereas the Administration informed the Finance Committee (FC) of the Legislative Council in 1988 that there were 600 affected villagers when seeking


approval to upgrade Stage I of the road project to category A, the Committee asked why there was a discrepancy between the two population estimates. The Committee also questioned why the CNTA did not make an attempt to verify its estimate of population with the Census and Statistics Department in order to arrive at an accurate figure. In response, the Director said that -

- albeit not through a proper population survey, the original figure of 600 was provided by the District Officer (Islands) in 1983 based on his best estimate of the demographic situation then prevailing from his daily contacts with the villagers and having regard to the number of houses in the villages;

- bearing in mind there was continuous flow of people in and out of the villages, it was commonly acknowledged that there were difficulties in accurately ascertaining the population of remote villages;

- as evidenced by the increase in the number of small house applications recently and the latest weekly population surveys conducted by the District Office (Islands) in conjunction with other departments, the existing population of North Lantau seemed to have increased to about 500 lately;

- this upsurge in population could be partly explained by the development of the new airport in Chek Lap Kok, and partly by the improved accessibility of these remote villages as a result of the completion of Stage I of the road project; and

- in the planning of large-scale works projects, it was now always the practice of the Home Affairs Department (HAD) to ascertain population figures with the Census and Statistics Department.

7.49 Noting the significant cost escalation of the road project, the Committee asked why there was an underestimation of the project scale and whether this reflected the poor planning of the departments concerned. The Director said that -

- with hindsight, better planning and co-ordination with other works departments would have eradicated a lot of problems which had arisen;

- the HAD fully agreed with the Director of Audit’s observations and recommendations;


- similar problems would not recur because since 1994, the HAD had set up a Rural Planning and Improvement Strategy (RPIS) Minor Works Steering Committee to consider and oversee all minor works projects under the RPIS submitted by its nine District Working Groups;

- the Steering Committee was chaired by the Director of Home Affairs and comprised, amongst others, representatives of the relevant works departments;

- in addition, the professional staff in the HAD had been strengthened as a result of taking over the responsibilities for the RPIS from the Territory Development Department in November 1994; and

- all in all, these new arrangements and developments should in the long run result in improved project management and estimation.

Subsequent to the public hearing, the Director provided the Committee with the terms of reference and membership of the RPIS Minor Works Steering Committee, a copy of which is at Appendix 29.

7.50 In response to the Committee’s query as to whether the standards applied by the CNTA to the construction of the access road were lower than those adopted by the works departments, the Director explained that -

- the CNTA did not have a comprehensive project evaluation system;

- the initial intention of the CNTA was to use a minimal operational and safety requirements approach to construct the access road in order to help the villagers as soon as possible; and

- as planning and construction works progressed, the CNTA soon realised that it was incapable of managing the complexity of the project which had emerged and subsequently the construction of the project was taken up by the works departments and included as a Public Works Project item.

7.51 The Acting Director of Highways said that since the Highways Department was represented on the RPIS Minor Works Steering Committee, all minor road projects under the RPIS would need to comply with the stringent standards set by the Highways Department. This was an improvement over the previous practice where the Highways Department did not participate in minor public works projects carried out by the CNTA.


Moreover, regardless of whether a road project was built by the Highways Department, his Department would generally be responsible for its maintenance.

7.52 The Committee enquired whether the HAD would give further consideration to implementing Stage II of the access road. In response, the Director of Home Affairs said that a proposal had been received from the Islands District Working Group comprising the District Officer (Islands) and representatives of the local residents for building a van track from Sham Wat to Sha Lo Wan. The RPIS Minor Works Steering Committee would examine the proposal at its next meeting.

7.53 The Committee invited the Director of Home Affairs to explain the reasons why the CNTA had chosen to proceed with the road construction as an LPW project by breaking up the estimated cost of $1.8 million into seven contracts, without due regard to the fact that this was in breach of the approved rules. The Director said that -

- the decision was taken because the District Office was keen to help the villagers by providing them with an easier access to Ngong Ping;

- the arrangement was believed to be feasible and there was no intention to breach the approved rules; and

- the works were proceeded in response to the recommendations of Members of the then Office of Unofficial Members of Executive and Legislative Councils that an access road be built as a matter of urgency.


- consider that good value for money has not been obtained for the access road because it now reaches only Sham Wat;

- express concern that the population in the villages concerned was significantly overestimated, and that no attempts had been made to find out the 1986 By-Census population figure before Stage I of the project was implemented, and recommend that, for future similar projects, population figures should be ascertained at an early stage in consultation with the Commissioner for Census and Statistics;

- express concern that the cost of the project had increased significantly and recommend that realistic cost estimates should be prepared at an early stage


of a road project, so that the costs and benefits of a project are accurately ascertained before implementation;

- express concern that, because of the overestimation of the population figure and the underestimation of the project cost, the Finance Committee, in approving funds for Stage I of the project in January 1988, was not given full and reliable information. Furthermore, the Finance Committee was not informed of the low traffic demand, although this was quite clear to the departments concerned;

- recommend that in seeking funds for a project, sufficient and reliable information should be given to the approving authority;

- consider it reprehensible that, in deciding to implement the project with Local Public Works Funds by breaking it up into seven contracts of less than $300,000 each at an estimated total cost of $1.8 million, the then City and New Territories Administration had breached the approved rules for the use of the Local Public Works Funds;

- note the acknowledgement made by the Director of Home Affairs that the then City and New Territories Administration did not have the necessary expertise and experience in handling this public works project and that it should have enlisted the assistance of the relevant departments at an earlier stage; and

- welcome the setting up of the Rural Planning and Improvement Strategy Minor Works Steering Committee to consider and monitor all minor works projects commissioned by the Home Affairs Department, and note the Director of Home Affairs’ assurance that with the Steering Committee acting as a monitoring mechanism, similar problems would not recur in future.

8. THE HONG KONG HOUSING AUTHORITY

HOUSING DEPARTMENT

The management and control of information technology(Part I: Information systems strategy, Part II: Computer equipment strategy

and Part III: Disaster recovery planning)

8.1 In examining the audit review on the management and control of information technology (IT) in the Housing Department (HD), the Committee were concerned about the delay in the implementation of its information systems strategy and disaster recovery planning.

8.2 According to paragraphs 13.13 and 13.14 of the Director of Audit’s Report which revealed that as a result of implementing the Maintenance Information Systems and Infrastructure Support (MISIS), which was scheduled to replace the Maintenance Management System (MMS) in 1996, the benefits of a fully computerised maintenance system for the Maintenance Division (MD) could not be realised until 1996, (i.e. some six years after the original implementation date) and the tangible gain in productivity amounting to $18.6 million a year could not be reaped, the Committee queried whether the delay of implementing the MISIS had caused an accumulated loss of $111.6 million. Referring to a recent tragedy of a girl who had accidentally fallen to her death because of an untended broken guard-rail in a Shatin public housing estate, the Committee asked whether any assessment had been made to find out the impact of the delay in implementing MISIS on the maintenance activities of the HD. The Director of Housing said that -

- the tangible gain of $18.6 million a year in productivity would only be realised after the implementation of the MISIS. As such, there was no question of any accumulated loss so incurred;

- the HD was one of the pioneers in the Government to develop information systems strategy planning in 1988;

- in fact, system development in the HD was ahead of that of most government departments;

- the main reason for some of the delays in system development was because of the very rapid changing computer technology which was beyond his control;

- although there was no doubt that with a fully computerised maintenance system providing up-to-date property information, maintenance project progress and maintenance history of property elements, productivity would be improved and the handling of maintenance activities could be done more systematically, it was difficult to assess whether the delay of implementing a



fully computerized maintenance system had adversely affected the handling of maintenance activities in the HD;

- even with the implementation of the MMS or MISIS, there was no absolute guarantee that accidents, such as the one mentioned by the Committee, would not occur; and

- despite the fact that development of Phase 2 of the MMS could not proceed due to the limited capacity of the non-Government Systems Architecture (GSA) mainframe computer to handle the additional workload, the efficacy of the operation of the MD had not been impaired. To realise some of the expected benefits of Phase 2 of the MMS which comprised the Property Information System and the Forward Planning and Resources Scheduling System, the MD users had developed some of the key functions of these two systems on microcomputers to meet individual operational needs with satisfactory results.

8.3 Referring to paragraph 13.17 of the Director of Audit’s Report concerning the staff shortage problem experienced by the Computer Division (CD) of the HD since 1990, thereby undermining the study and development of Phase 2 of the MMS, the Committee questioned whether any effort had been made to improve the manpower situation. In response, the Director said that -

- the establishment of IT staff of the HD had not experienced any growth since 1990, i.e. the establishment stood at 105 in 1990 and remained at 106 in 1995;

- it was very difficult to obtain the requisite resources to develop the MMS as the Housing Authority held a very tight rein over manpower expansion;

- notwithstanding the staffing problem, the HD had been able to emulate some of the works of Phase 2 of the MMS through the use of microcomputers; and

- to compensate for the shortfall in staff strength to conduct strategic planning of information systems, the HD had hired the service of outside consultants.

8.4 Responding to the Committee’s enquiry about the reasons for commissioning outside consultants to undertake the study on disaster recovery planning rather than having it done by in-house IT staff, the Chief Systems Manager said that both the shortage of IT staff and the lack of the requisite computer expertise in the HD had attributed to the decision to commission outside consultants. He added that although the CD had some 106



IT staff, they were often too involved in their routine works to be able to spare any extra time to embark on disaster recovery planning.

8.5 On a follow-up question, the Committee asked whether disaster recovery system required very specialised technology to the extent that the expertise was not available either in the HD or the Information Technology Services Department (ITSD). In response, the Chief Systems Manager said that -

- the HD’s computer systems totalled more than 20 major information systems supporting a wide range of administrative and operational activities;

- in view of the complexity of the systems and in recognition of the importance of disaster recovery planning, the HD deemed it necessary to do a thorough job in deciding the way forward;

- it was considered useful to obtain advice and support from outside consultants who had successful experience in turning out disaster recovery system in other overseas organisations;

- before issuing tender invitations, the ITSD had actually been requested to render support in carrying out a disaster recovery study but probably because of the fact that the ITSD did not have the spare capacity to take up this assignment, the HD was recommended to commission an outside consultant to do the job instead; and

- the ITSD might not have the requisite experience to handle a project of such big scale and complexity given the fact that the Department had only developed one similar system in the past.

8.6 In reply to the Committee’s enquiry as to whether the replacing of the non-GSA mainframe computer by the GSA platform could be achieved by mid-1996 as reported in paragraph 13.33 of the Director of Audit’s Report, the Director of Housing confirmed that this could be achieved on schedule.



8.7 Referring to paragraph 13.42 of the Director of Audit’s Report which revealed that the Housing Department Computer Committee (HDCC) had approved in April 1995 the HD’s recommendation to proceed with a consultancy study, the Committee noted that one of the two aims of the consultancy study was to provide the HD with an assessment of the risks and the loss which would result if there were information system failures. The Committee asked whether the HD was satisfied with the existing contingency arrangements as it appeared that the HD was hesitant in setting up a disaster recovery centre to provide backup and alternative computer resources to its information systems. In response, the Chief Systems Manager said that -

- not all information systems required disaster recovery systems, having regard to the fact that some operational works did not totally rely on computer and that such information systems were provided with adequate contingency arrangements to counter system failures;

- as such, it was considered pragmatic to conduct a consultancy study to identify which information systems should be provided with a disaster recovery system; and

- this approach was considered more efficient operationally and financially.

The Director of Housing added that given the ever expansion of information systems in the HD, it was deemed necessary to commission a consultancy study to undertake a comprehensive review in order to draw up a realistic disaster recovery plan for its computer systems.

8.8 In view of the absence of a permanent disaster recovery centre, the Committee asked whether the HD had any interim backup measures for its information systems. The Director said that -

- all along, the HD had been adopting some preventive measures against disasters for its information systems;

- although the existing contingency arrangements were not perfect, it did not mean that the HD’s computer systems were at risk;

- since 1992, action had been stepped up to minimise the risk in the event of a disaster, e.g. all system/user data were copied daily onto magnetic tapes and stored off-site. In addition, each information system had a contingency plan to meet the general needs of users if it was out of service due to whatever



causes. All in all, this meant that the HD’s operations could continue to function within certain limits;

- to make the HD’s contingency plan more comprehensive, a consultancy study on disaster recovery planning would be commissioned shortly; and

- the disaster recovery strategy recommended by the consultants, once accepted, would be implemented expeditiously.

8.9 Whilst noting that the off-site backup centre merely served as a data repository, the Committee asked whether any effort had been made thus far to enable all of the HD’s information systems to run smoothly in an off-site disaster recovery centre in the event of a disaster. The Committee also asked whether the ITSD had been approached for rendering support in this regard. In response, the Director said that -

- during the past one to two years, effort had been made to explore the feasibility of using the ITSD’s or other organisations’ computer facilities to process the HD’s critical computer workload in the event of a disaster but to no avail;

- the difficulty was probably due to the HD’s very complex and large-scale computer set up; and

- the consultancy study would hopefully throw light on how to go about realising disaster recovery for the HD’s information systems.

The Chief Systems Manager added that the HD would keep an open mind to all recommendations that might be put forward by the consultants. They could include a collaboration with the ITSD or other computer vendors in operating a disaster recovery centre, or the HD could run the centre on its own.

8.10 Responding to the Committee’s enquiry about the HD’s expectation in respect of the experience and qualifications required of the consultants to be commissioned for the disaster recovery plan, the Chief Systems Manager said that -

- it was specified in the tender document that the key designated consultants should have at least 10 years’ relevant skills and experience;

- the qualification requirement was set by the HD; and



- when arriving at the ten-year benchmark, prior research had been made to the background of the IT staff in the HD and the ITSD. It was revealed that both departments did not possess the requisite experienced staff to handle the job.

8.11 Observing that there was an upsurge of IT staff establishment from 67 to 105 between 1988 and 1990, the Committee asked what achievements in IT developments had been made by the HD since 1988. The Director of Housing said that -

- the HD had implemented most of the new information systems, i.e. the Integrated Financial Accounting System, the Integrated System for Housing Management, the Centralized Project Monitoring System etc., which had been given top priority in the implementation of the 1988 Housing Department Information Systems Strategy by 1990;

- although Phase 2 of the MMS was not implemented as planned in 1990, enhancements to the MMS had never been stopped since its implementation in 1986;

- in early 1991, the MD initiated a study known as System 2000 to review and assess the existing MMS and to outline the concept of the new system which was targeted to be implemented in 1990s, based on the anticipated environmental and technological changes likely to take place in the coming years;

- the new system turned out to be the MISIS which was intended to replace the whole MMS and scheduled for implementation in 1996;

- the absence of two new information systems supposedly contained in Phase 2 of the MMS was generally made up by the use of microcomputers;

- a number of preventive measures had been adopted to minimize risks in the

event of a disaster; and

- in general, the HD had been able to achieve its IT targets save that of the establishment of an off-site disaster recovery centre which would be examined and pursued by the impending consultancy study.

8.12 Noting the Director of Audit’s advice that some three to four government departments had already set up a disaster recovery system for their information systems, the



Committee questioned why the HD could not borrow experiences from these government departments and had to resort to outside consultants, the Director explained that -

- the HD was one of the first government departments which developed a comprehensive information systems strategy and the Department’s computer systems were in general more advanced and complex than those installed by other government departments; and

- the decision to commission outside consultants was made in consultation with and on the recommendation of the ITSD.

8.13 In response to the Committee’s enquiry about the budget and the funding arrangement for hiring outside consultants, the Chief Systems Manager said that -

- the budget for the consultancy study was $1 million; and

- it was the practice of the HD that at the beginning of each financial year, users were required to justify their requests for information systems to their respective steering committees and then submit their requests to the HDCC for approval. Thereafter, the proposal would be submitted to the Establishment and Finance Committee of the Housing Authority for approval of the necessary funding.

8.14 Subsequent to the public hearing, the Director of Housing provided the Committee vide Appendix 30 the detailed criteria and procedure adopted by the HD for the commissioning of outside consultants to carry out the disaster recovery study. In addition to this, he also provided a consultants’ proposal on disaster recovery planning for the HD’s Bureau Computer Centre. The Director further advised that tender proposals had been received by the HD and, pending approval by the Establishment and Finance Committee of the Housing Authority of the successful tenderer, consultants would immediately be commissioned to perform the consultancy study with a view to completing the job within three to four months’ time.


- express concern at the serious delay of the Housing Department in implementing Phase 2 of the Maintenance Management System and realizing its expected benefits;



- recommend that information systems should be implemented in accordance with the priorities set out in the implementation programme of the approved information systems strategy and that deviations therefrom should be reported back to the Housing Department Computer Committee for approval;

- consider that the priorities of new information systems should be assessed against the priorities of those which are already existing in the implementation programme of the approved information systems strategy, taking into account the Housing Department’s current business needs;

- wish to be kept informed of the progress of implementation of the new maintenance management information system;

- express concern that the computer capacity planning exercise conducted in October 1988 did not include the processing needs for implementing Phase 2 of the Maintenance Management System and recommend that in future, computer capacity planning exercise should assess accurately the current and future processing needs for the implementation of approved information systems;

- express concern at the slow progress of disaster recovery planning;

- note that the Housing Department will engage a consultant to assess the risks of its information systems and to set up a disaster recovery centre, and recommend that the Housing Department should ensure that the recommendations in the consultancy study report, if they are accepted, are implemented expeditiously;

- recommend that the Housing Department should explore the feasibility of using the Information Technology Services Department’s or other organisations’ computer facilities to process its critical computer workload in the event of a disaster; and

- wish to be kept informed of the progress of the Housing Department’s disaster recovery planning.

SIGNATURES OF THE CHAIRMAN AND MEMBERS OF THE COMMITTEE

Eric LI Ka-cheung (Chairman)

Ronald Arculli Albert CHAN Wai-yip

Emily LAU Wai-hing CHAN Kam-lam

LAW Cheung-kwok SIN Chung-kai

30 January 1996

PARAGRAPHS IN THE DIRECTOR OF AUDIT’S REPORT NO. 25DEALT WITH IN THIS PUBLIC ACCOUNTS COMMITTEE’S REPORT

Director of P.A.C.Audit’s Report ReportNo. 25 No. 25Paragraphs Subject Paragraphs

1.1 - 1.24 Review of the housing benefits provided by the Hospital Authority to its employees

6.1

2.1 - 2.38 Problems of recovering from the UNHCR the advances: Expenditure to care for Vietnamese migrants

6.2 - 6.20

3.1 - 3.35 Under-utilization of government school sites 6.21 - 6.28

4.1 - 4.25 Overtime allowance paid to chauffeurs and motor drivers

6.29 - 6.36

5.1 - 5.40 The registration of trade marks 6.37 - 6.52

6.1 - 6.34 Computerization of land information in the Government

6.53 - 6.64

7.1 - 7.55 Management of Public Cargo Working Areas 6.65 - 6.82

8.1 - 8.40 Financial assistance for single-parent families under the Comprehensive Social Security Assistance Scheme

6.83 - 6.93

10.1 - 10.49 Chemical Waste Treatment Centre 7.1 - 7.24

11.1 - 11.25 Contractual disputes over the construction of the Pamela Youde Nethersole Eastern Hospital

7.25 - 7.45

12.1 - 12.24 Construction of an access road from Ngong Ping Road to Sha Lo Wan in North Lantau

7.46 - 7.54

13.1 - 13.45 The management and control of information technology (Part I: Information systems strategy, Part II: Computer equipment strategy and Part III: Disaster recovery planning)

8.1 - 8.15

- 116 -

APPENDIX 1

Standing Order 60A of the Legislative Council

60A. Public Accounts Committee

(1) There shall be a standing committee, to be called the Public Accounts Committee, to consider reports of the Director of Audit -

(a) on the accounts of the Government;

(b) on such other accounts required to be laid before the Legislative Council as the committee may think fit; and

(c) on any matter incidental to the performance of his duties or the exercise of his powers as the committee may think fit.

(1A) The committee shall also consider any report of the Director of Audit laid on the table of the Council which deals with examinations (value for money audit) carried out by the Director relating to the economy, efficiency and effectiveness of any Government department or public body or any organization to which his functions as Director of Audit extend by virtue of any Ordinance or which receives public moneys by way of subvention.

(2) The committee shall consist of a chairman and six members who shall be Members appointed by the President in accordance with an election procedure determined by the House Committee. The chairman and two other members shall constitute a quorum. In the event of the temporary absence of the chairman, the committee may elect a chairman to act during that absence.

(3) A report mentioned in

paragraphs (1) and (1A) of this order shall be deemed to have been referred by the Council to the committee when it is laid on the table of the Council.

(3A) Unless the chairman otherwise orders, members of the public and of the press shall be admitted as spectators at sittings of the committee attended by any person invited by the committee under paragraph (4).

(3B) The committee shall sit at the times and the place determined by the chairman. Written notice of every sitting shall be given to the members and to any person invited to attend a sitting at least five clear days before the day of the sitting but shorter notice may be given in any case where the chairman so directs.

(3C) All matters before the committee shall be decided by a majority of the members voting. Neither the chairman nor any other member presiding shall vote, unless the votes of the other members are equally divided, in which case he shall have a casting vote.

(4) The chairman or the committee may invite any public officer, or, in the case of a report on the accounts of or relating to a non-Government body or organization, any member or employee of that body or organization, to give information or any explanation or to produce any records or documents which the committee may require in the performance of its duties; and the committee may also invite any other person to assist the committee in relation to any such information, explanation, records or documents.

(5) The committee shall make their report upon the report of the Director of Audit on the accounts of the Government within 3 months (or such longer period as may be determined under section 12 of the Audit Ordinance (Cap. 122)) of the date on which the Director’s report is laid on the table of the Council.

(5A) The committee shall make their report upon the report of the Director of Audit mentioned in paragraph (1A) within 3 months (or such longer period as may be determined by the Council) of the date on which the Director’s report is laid on the table of the Council.

(6) Subject to these Standing Orders, the practice and procedure of the committee shall be determined by the committee.

APPENDIX 2

Paper presented to the Legislative Councilby the Chairman of the Public Accounts Committee

at the sitting on 19 November 1986 onScope of Government Audit in Hong Kong -

‘Value for Money’ Studies

SCOPE OF WORK

The Director of Audit may carry out examinations into the economy, efficiency and effectiveness with which any branch, department, agency, other public body, public office, or audited organization has discharged its functions.

The term “Audited Organization” shall include:

(i) any person, body corporate or other body whose accounts the Director of Audit is empowered under any Ordinance to audit;

(ii) any organization which receives more than half its income from public moneys (this should not preclude the Director from carrying out similar examinations in any organization which receives less than half its income from public moneys by virtue of an agreement made as a condition of subvention);

(iii) any organization the accounts and records of which the Director is authorized in writing to audit by the Governor in the public interest under section 15 of the Audit Ordinance.

This definition of scope of work shall not be construed as entitling the Director of Audit to question the merits of the policy objectives of any branch, department, agency, other public body, public office, or audited organization in respect of which an examination is being carried out or, subject to the following Guidelines, the methods by which such policy objectives have been sought, but he may question the economy, efficiency and effectiveness of the means used to achieve them.

GUIDELINES

1. The Director of Audit should have great freedom in presenting his reports to the Legislative Council. He may draw attention to any circumstance which comes to his knowledge in the course of audit, and point out its financial implications. Subject to these Guidelines, he will not comment on policy decisions of the Executive and Legislative Councils, save from the point of view of their effect on the public purse.

2. In the event that the Director of Audit, during the course of carrying out an examination into the implementation of policy objectives, reasonably believes that at the time policy objectives were set and decisions made there may have been a lack of sufficient, relevant and reliable financial and other data available upon which to set such policy objectives or to make such decisions, and that critical underlying assumptions may not have been made explicit, he may carry out an investigation as to whether that belief is well founded. If it appears to be so, he should bring the matter to the attention of the Legislative Council with a view to further inquiry by the Public Accounts Committee. As such an investigation may involve consideration of the methods by which policy objectives have been sought, the Director should, in his report to the Legislative Council on the matter in question, not make any judgement on the issue, but rather present facts upon which the Public Accounts Committee may make inquiry.

The Director of Audit may also,

3. consider as to whether policy objectives have been determined, and policy decisions taken, with appropriate authority.

4. consider whether there are satisfactory arrangements for considering alternative options in the implementation of policy, including the identification, selection and evaluation of such options.

5. consider as to whether established policy aims and objectives have been clearly set out; whether subsequent decisions on the implementation of policy are consistent with the approved aims and objectives, and have been taken with proper authority at the appropriate level; and whether the resultant instructions to staff accord with the approved policy aims and decisions and are clearly understood by those concerned.

6. consider as to whether there is conflict or potential conflict between different policy aims or objectives, or between the means chosen to implement them.

7. consider how far, and how effectively, policy aims and objectives have been translated into operational targets and measures of performance and whether the costs of alternative levels of service, etc. have been considered, and are reviewed as costs change.

8. be entitled to exercise the powers given to him under section 9 of the Audit Ordinance.

APPENDIX 3

Second Revised Codicil* to the Paper “Scope of Government Audit in Hong Kong -

‘Value for Money’ Studies”**tabled by the Chairman of the

Public Accounts Committee in the Legislative Councilon 26 July 1995

The Director of Audit shall report his findings on value for money studies in the Legislative Council twice each year. The first report shall be submitted to the President of the Legislative Council within seven months of the end of the financial year, or such longer period as the Governor may determine. Within one month, or such longer period as the President may determine, copies shall be laid before the Legislative Council. The second report shall be submitted to the President of the Legislative Council by the 7th of April each year, or such date as the Governor may determine. By the 30th April, or such date as the President may determine, copies shall be laid before the Legislative Council.

The Director’s report shall be referred to the Public Accounts Committee for consideration when it is laid on the table of the Legislative Council. The procedure to be followed by the Public Accounts Committee in considering the Director’s reports, is specified in Standing Order 60A of the Legislative Council.

A Government minute commenting on the action Government proposes to take in respect of the Public Accounts Committee’s report shall be laid on the table of the Legislative Council within three months of the laying of the report of the Committee to which it relates.

Note:

* The original Codicil and the Revised Codicil were laid on the table of the Legislative Council on 28 October 1987 and 31 March 1993 respectively.

** The Paper “Scope of Government Audit in Hong Kong - ‘Value for Money’ Studies” was laid on the table of the Legislative Council on 19 November 1986. The Director of Audit’s Value for Money Studies have since been retitled as “Value for Money Audits”, but they are referred to as “Value for Money Studies” in this document for consistency with the wording of the original Paper.

APPENDIX 4

Principal witnesses who appeared before the Committee(in order of appearance)

Mr S R Selby, JP Director of Intellectual Property

The Hon Michael SZE Cho- Secretary for the Civil Servicecheung, CBE, ISO, JP

Mr Tony NGUYEN Acting Principal Assistant Secretary (Civil Service) (5)

Mr P B Walker Government Land Transport Administrator

Mrs Katherine FOK, OBE, JP Secretary for Health and Welfare

Mrs Doris HO, JP Deputy Secretary for Health and Welfare (1)

Mr P L PO Principal Assistant Secretary (Health and Welfare) (Special Duties)

Mr Daniel CHENG Acting Principal Assistant Secretary (Health and Welfare ) (Medical) (2)

Mr M V Stone, JP Deputy Secretary for the Civil Service (2)

Mr D W Pescod Principal Assistant Secretary (Civil Service) (1)

Mr K C KWONG, JP Secretary for the Treasury

Dr E K YEOH Chief Executive, Hospital Authority

Mr Andy LEE Deputy Director (Finance), Hospital Authority

Mr Bowen LEUNG, JP Secretary for Planning, Environment and Lands

Mr Rob Law Deputy Director of Environmental Protection

Mr I B Dale, JP Director of Marine

Mr M C TSANG Assistant Director of Marine, Port Services

Mr Gordon SIU, JP Secretary for Economic Services

Mr T Clark Deputy Secretary for Economic Services

Mr TSUI Shung-yiu Deputy Director of Marine

Mr Raymond TANG Assistant Director of Marine, Planning of Local Services

Mr C K WONG Chief Treasury Accountant, Marine Department

Mr Peter LAI, JP Secretary for Security

Mr B J Bresnihan, MBE, JP Refugee Co-ordinator

Mr Jahanshah Assadi Representative of UNHCR

Mr W K LAM, JP Director of Education

Mr Ian Wotherspoon Government Property Administrator

Mr T FUNG, OBE, JP Director of Housing

Mr CHEUNG Woon-hang Chief Systems Manager, Housing Department

Mr R D Pope, JP Director of Lands

Mr CHAN Hak Government Land Surveyor, Lands Department

Mr K H LAU, JP Director of Information Technology Services

Mrs Carrie LAM Deputy Secretary for the Treasury (1)

Mr M J T Rowse Deputy Secretary for the Treasury (2)

Mr Stephen MAK, JP Assistant Director of Information Technology Services (Departmental Services)

Mrs Shelley LAU, JP Director of Home Affairs

Mr T L HSU Acting Director of Highways

Mr Y C YEUNG Regional Highway Engineer/NT

Mr Ian Strachan, JP Director of Social Welfare

Mr S H PAU, JP Acting Director of Architectural Services

Mr A R Wilson Chief Architect, Architectural ServicesDepartment

Mr M J Arnold Deputy Secretary for the Treasury (3)

Sir S Y CHUNG, GBE, PhD, Former Chairman of Hospital Authority FEng, JP

Sir David Ford, KBE, LVO, JP Former Chief Secretary

Mr Barrie Wiggham, CBE, JP Former Secretary for the Civil Service

The Hon Mrs Elizabeth WONG Former Secretary for Health and Welfare CHIEN Chi-lien, CBE, ISO, JP

Mr TSANG Yam-pui, QPM, CPM Director of Crime and Security, Royal Hong Kong Police Force

Representatives of Hong Kong Cargo - Vessel Traders’ Association Ltd.

Mr PANG Yiu-son

Mr CHOW Yet-tak

Mr CHOI Kim-lui

Mr LAU Hing-kee

Mr LEUNG Yiu

Mr MAK Kan

Mr ZHUANG Qiu-zhen

APPENDIX 5

Introductory Remarks by the Chairmanof the Public Accounts Committee,

the Hon Eric LI Ka-cheung, JPat the First Public Hearing of the Committee

on Monday, 20 November 1995

Good morning, ladies and gentlemen. I would like to welcome observers to this public hearing of the Public Accounts Committee.

For the benefit of those attending the hearings of the Public Accounts Committee for the first time, I would like to say a few words about the work of the Committee. The Public Accounts Committee is a standing committee of the Legislative Council which plays the role of a watchdog over public expenditure through consideration of the reports of the Director of Audit laid before the Council.

For the Committee, public hearing is a crucial part of our work, the purpose of which is to explore the background and the facts surrounding the issues raised in the Director of Audit’s report. Our approach, as always, will be fact finding and problem solving rather than simply laying blames and expressing opinions, and we hope that through this exercise the lessons that we learnt in the past will point forward to more efficient use of public funds in the future.

The Director of Audit tabled two reports in the Legislative Council on 8 November 1995, namely his Report on the Accounts of the Hong Kong Government for the year ended 31 March 1995 and his Report No. 25 on the results of value for money audits completed between March and September 1995. Following preliminary study of the Director’s reports, the Committee have decided to look into some of the issues raised and for this purpose we have invited the public officers and relevant parties concerned to appear before the Committee and answer our questions. Apart from this morning, we have also set aside the mornings on 25 and 27 November for our public hearings, and after we have studied the issues and the evidence taken, we will then produce our own set of conclusions and recommendations. These recommendations will be made public when we report back to the Legislative Council in about three months’ time. Before then, we will not as a committee, or individually, be making any public comment on our conclusions.

I now declare the Committee to be in formal session.

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